Add value to your business in 2015 by avoiding these five mistakes:
- Taking too much money out of your business
- Giving away margin
- Falling for lower fuel prices
- Ignoring new technologies
- Not learning something new
So by now the first of your 2015 resolutions have probably gone undone, ignored or broken.
Here are five things to NOT DO if you want to add some value to your business in 2015.
Do not pay a dividend
Keep your cash in the business.
Your business may have some difficulties ahead of it in 2015. Load shedding looks like it may become an uncomfortably regular occurrence for the foreseeable future. If you don’t plan for it adequately, lost production may eat into your profits, meaning less money to pay the bills. So keep excess profits from the current year in your business, or at least available in your business.
There is more to this: If you sell your business with a strong balance sheet, 1) you will get a higher price for it, and 2) you won’t have to pay dividend tax to get your money out of the business.
Do not give away margin
One of the biggest stresses in most small businesses is the problem of collecting debtors. So many businesses; big, small and everything in between, offer small discounts on the outstanding to persuade debtors to pay by the date they have previously agreed to actually pay the outstanding amount.
Here is the result. Well, here is the background to the result: We look at hundreds of income statements in the course of doing business valuations. Very, very few of them have net margins over 10% of sales turnover. Most are around 5%. The discount businesses give for early settlement are generally about 2% of the sales turnover. You might be giving away 40% of your net profit, just so that your customer does not abuse your agreement with him. Find another way of doing it, or build the discount into your price increases. Don’t give away margin unnecessarily. Build your business value.
Don’t be seduced by falling fuel prices
Three months ago we had no indication that the current windfall was about to happen. The royal house of Saud can pull that plug at any time, or the Americans can start importing at silly prices again, and slow down on fracking, or {add your own conspiracy theory here}. Wherever the benefit is headed, there are other things ready to step in and negate its benefits. Like Eskom, again. Or like trouble at SARS resulting it being unable to collect sufficient funds to run the country, resulting in further ratings agency downgrades and increased interest rates. Or we could have some good old fashioned South African unscheduled industrial action. Any of those might result in the Rand going south, and adding to fuel prices.
Similarly unexpected, reversing fuel price drops could take away from your sales or add to your expenses. Lower profits mean lower business values. Be careful of blowing fuel savings on something unnecessary.
Keep your powder dry, keep your margins up, keep your expenses under control. Those strategies will keep your business value up, and even increase it.
Don’t ignore the gathering tsunami of cheaper and cheaper technology
In most of our lifetimes, they will start printing body parts. That is happening already on a basic level with some dentists printing new crowns for their patients while they wait. No longer any need for the patient to live for a week or two with a temporary cast. At the same meantime widgets are being printed from designs emailed to printing “factories” which do not need expensive dyes, time consuming set ups, minimum runs or detailed know how. Take a look at this.
The youth next door can conceptualise a competing product to yours, have three very cheap trial runs, and go into production… before the end of the month! She does not need any seed capital beyond that which can be funded by her mom’s credit card. A web site can become her shop front. If she sells one item, she will be in profit. If she sells nothing, she will move onto the next idea. Heck; if she makes a fortune, she will still move onto the next product anyway. Then she’ll have two businesses, neither of which require a work force to make small profits.
Who needs a garage start up today? This tsunami is coming at us from the bedrooms of geeks with goolies (GWG).
So don’t ignore the opportunity for yourself with all the experience you have in your current industry. You can learn how on the internet, this year. Your next prototype can also cost you next to nothing. The difference between you and the GWG is that you have years of experience in your field. She probably does not have the where with all to move to the mass production necessary for tipping point sales, so you’ll be ok.
So many of my clients have successful businesses today because they did not run scared from Chinese production. Instead lying down in a corner with those who went out of business at the time, they started using Chinese manufacturers to make their stuff, and evolved themselves from manufacture to import – wholesaler, making even bigger margins. Did you miss that opportunity?
Don’t miss this one. We are on the brink of something big. You can run scared or you can take advantage of the surge in technological ability at silly low prices.
Don’t discount the value of learning something new in 2015
If your business collapses, your suretyships are called and your lose everything, “they” can never take away your education. Your degree remains in place, or your matric, or your standard 8. You may have to hitch rides and live in a shack, but what is in your head is there, now with a bit of experience, and ready to get you going again. Hopefully you don’t have to go through that sewer, and learning something new in 2015 will add even more to whatever you have of value in your life.
If you are not a book reader, generally; read just one book this year. Make it something that will solve some issues in your business. Then read it again. Then tell people about what you have learned, and put it into action in your business.
Implementing something new in your business, garnered from something you have read that adds to improved processes, improved profits, less stress, more fun, new ideas, fresh outlooks, relaxation or something to talk about… That all adds value, if not to your business, then to your life.