Friday, May 31, 2013
Five Fatal Errors That Devalue Your Business
As a business owner it is easy to get off track and find your self with a money pit instead of a gold mine. From years of working with business owners, here are some of the most impactful errors that you should avoid when running your business. Taking out too much cash. With a cash-based business, like a restaurant, dry cleaner or other cash based business; this can be the most devastating error. When you take cash out of the business, your revenues are reduced and and your profits are reduced. This is great if you want to avoid paying taxes, but this also greatly devalues your business. Remember, this is also illegal! Employing your family. In the beginning is it expected you might leverage your family, especially, if you can pay them less than a regular employee. The challenge is when you go to value your business, now a full cost employee has to be added back and this reduces the profit and the value of the business. Consider paying your fmaily member full wages as soon as you can. Many businesses on tax return. Actually having multiple businesses on one tax return is not so bad, unless you do not have the income and expenses separated. It is even worse if you have multiple locations and those incomes and expenses are combined. This makes it hard to determine the value of one unit. Openly disclosing a business is for sale. Because the sale of a business can take a year or longer, openly disclosing this information can affect your employees, vendors and customers. This can reduce your revenue, your credit lines. For one business, the sales team left and the business went out of business before it could be sold. This should be kept highly confidential. Changing the way they run the business. It is easy to think that once you have decided to sell your business now you can take you foot off the gas and relax. The truth is buyers are most critical of your most recent activity. So the now is really the time to make the numbers look the best they have ever looked. By avoiding thses fatal errors, you are more likely to see your business as a gold mine than a money pit.