In the business world, clients mean money. Have no doubt, a buyer will pay a premium for what they perceive is more money. A buyer will look at your clients and ascertain the value of your business to them on the basis of the average spend and longevity of your clients. They will look to find a way to measure the loyalty of those clients. For many small businesses the true quality of their clients is questionable for a potential buyer. Many of us spend too much time on getting clients and not enough time on ensuring their long time longevity and spend with us.
The 5 signs of a quality client
- Clients must not have their primary relationship with you. A client who relies on your personal input to keep them happy is of no value to a buyer. When you are gone, so is the client. So whilst in the early days it is normal and expected that your clients have their primary relationship with you, your exit strategy needs to include your plan for weaning your clients off of you and onto your systems and people (see next points). At liber8yourbusiness we put a lot of emphasis on teaching you how to plan an exit strategy that removes client reliance on the business owner.
- Clients should be committed to contracted spend with your business for a measurable time into the future. A potential buyer is moderately interested in your track record, they want to see the history of the business and how it has grown. But they are far more interested in the future earnings of the business. Clients who are locked in to a defined future income give real tangible value to your business.
- Clients will be on a ‘repeat business’ basis rather than one off. Businesses which have clients on a regular payment scheme fulfil the same need for recognised future income. In a similar way, clients who are members/subscribers offer a potential buyer a tangible future asset. A buyer can see at a glance what they are buying and as long as they feel confident in the product and the systems, they will buy those clients off you at a real value.
- In a traditional retail model, your store/s will have a balanced profile/location ratio (this means that your store/s are located in areas with high concentrations of your target audience profile).
- A client who LOVES your business and is happy to give you both testimonials and referrals are worth their weight in gold. A potential buyer wants to know they are buying happy clients, it would be a disaster for them to buy your business only to find the clients were on the verge of a revolt. It’s not uncommon for a potential buyer to want to talk to your key clients, so they better be happy!
If you are serious about selling your business, one of the goals you should have clearly marked in your business plan is ‘locked in’ forward revenues. This is money that is committed to the business for a reasonable period into the future. Of course a buyer will look at your track record and your turnover and profits from previous years. But what they really want to know is what money will the business make for them going forward. What profits can they be certain of once they own the business? They have to see their investment will pay off. The best way to reassure them of this is to have income that is ‘locked in’… or as my dear old dad used to tell me:
“You gotta have a back end!”
My dad had a photo copier business back in the seventies. He sold it and retired in his early fifties. He told me that the real beauty of his business was not the sale of the big machines up front (which was great for cashflow) but the fact that for every machine sold he also got a ten year contract to supply all the ink, paper and toner, as well as regular servicing for each customer. No wonder he did so well when he sold his business. The buyer could see ten years worth of guaranteed revenues, all signed into contracts. Simple. Yet brilliant.
When I sold my advertising agency several years later, a big attraction for the buyer was the fact that my key clients had signed three year contracts, agreeing to a set spend with the agency for every year of the contract. The buyer could see the worth of the business they were buying in real terms, not just on projections based on past performance.
A key word here to remember and apply to your own business is ‘contract’. Get your clients into a contract for future services. Think of a way to make that attractive to them, based on value, guaranteed deliverables, exclusivitity, savings for them… whatever it takes (without compromising your margin too much) to get them to commit income to you for a number of years in advance.
Exercise for the day… what is your company’s ‘back end’? How can you build guaranteed future income that would be attractive to a future buyer?
A buyer with money in their pocket will come to you when you have attracted their attention. You will need to be big enough and credible enough and they will have seen your business making waves in all the right pools for your industry.
You are always a nobody until you are a somebody. So you have to make sure your business has the best reputation in your industry for a buyer to notice you. You have to put your business out there and make sure it is seen. The following two strategies can help build your company’s reputation:
1. Be an expert. Tell the world what you know. Start writing articles and send them off to publications in your industry. Set up a blog and start blogging about your industry. Turn some of your ideas into a flyer, get it printed and distributed to your customers and your competitors customers. Make it an e-version and promote it via your website (thereby building an email database too). For subject matter, just write about what you know. Lists work really well, especially if you number them.. eg. An osteopath could write ‘the 9 things people don’t realise about their spine’; a fashion retailer could write ‘5 ways to wear red this winter’ or ‘7 ways to look slimmer in dresses this summer’. You get the idea. Its about adding value to people and having them see you as an expert in your field. If you are confident at public speaking you can also put yourself forward as a speaker in your area of expertise and let networking groups know you can add value to their meetings.
2. Win awards. I’ve always been a big fan of entering awards. I was runner up for NZ business woman of the year 3 times when I owned my advertising agency. Even though I didn’t win, I got masses of media coverage. When my agency won Agency of the Year, our reputation really took off. It was that year that a multi-national came knocking on my door and yes… paid a premium for my business. Last year my pet care company won a regional best SME award and were finalists in another local business award, which saw us on the front page of the business section of the daily paper as well as on national TV. There is no doubt about it, awards are impressive and when a buyer is looking for a business to buy, a business that has won numerous awards has to be a good one, right?
Exercise: start looking for awards you can enter. All industries have awards. There is a bit of a knack to writing your entry so that you maximise the good about your company and minimise the not so good.