Is Your Business a Cash Suck or a Cash Spigot?

Man in suit pointing to graph with pen

When it comes time to sell your business, you’ll receive a check. This check is the icing on the cake of all the blood, sweat, and tears that you poured into your business during your time as the owner. The buyer, on the other hand, is going to be writing two checks: the one that pays you, and the one that sustains the business after you’re gone.

If the cost of running your business is low, that typically means more money in your pocket. The flip side is that if the buyer sees the need for more capital than they have, it’s coming out of your check. Even buyers who want to offer you more money aren’t in a position to do so if they won’t have enough to stock inventory, pay employees, and keep the lights on.

If you want to avoid this fate, it’s important to know what your business is worth to a buyer when you’re ready to sell. That’s where the ValueBuilder valuation teeter-totter comes into play.

The Valuation Teeter-Totter

A teeter-totter is simple science in action. It consists of a pivot point attached to a long plank that is meant to tip in favor of the heavier end. This little playground toy is the perfect metaphor for your business.

On one end is the value of your business- what it brings to the table and how much it is capable of making the owner. On the other end is the cost of your business, including payroll, utilities, vendor invoicing, taxes, insurance, and all of the little things that go into helping your business run.

Your goal as an eventual seller is to ensure that the teeter-totter stay tipped in your favor. Keeping the value worth more and the cost of operation less is the key to selling your business at the most profit to you.

Cash Suck or Cash Spigot?

As the time to sell your business approaches, there is one question that you must ask yourself to determine if now is the right time: Is your business a cash suck or a cash spigot?

If you find yourself short on bills, short on cash, and short on patience with the everyday happenings of your business because you’re not bringing in enough profits, your business is a cash suck. It’s sucking cash out of your pocket without giving back enough in profits to repay your efforts.

If you are comfortable, make enough in sales to pay all your bills and yourself, and are continuing to experience sustained, level growth, your business is a cash spigot. It is pouring value onto one side of the teeter-totter, making your business more valuable in the eyes of the seller.

More value means that your life’s work is putting money back in your pocket, and that’s a good position to be in.

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