Make no mistake, business value boils down to EBITDA (earnings before interest, taxes, depreciation and amortization). EBITDA is the metric by which most companies are valued at the time of their sale. Nevertheless, the value of a business can drop significantly in response to years of marketing neglect, sometimes surprising owner(s) who fail to realize or choose to ignore great marketing’s effect on a brand.
As Kansas City’s first advertising agency and marketing company devoted to small and family-held businesses, we’ve seen more than our share of business sales. Buy-sell agreements seldom include line items for marketing discounts. EBITDA aside, marketing plays a critical role in the amount ultimately paid for a business.
Want more money for your business when you sell it? Don’t ignore the value of your marketing strategy. Whether you are in startup mode or entering your fifth generation of business, make note of these important marketing factors that will impact your company’s value and price at the time of its sale.
The five most important areas of that deserve attention are naming conventions, intellectual property, recurring revenue, brand reputation and sales pipeline. Let’s break them down.
Naming Conventions
If the name of your business is also your surname, let’s say Jones, and you want to sell it to someone named Smith, you face your first challenge. Any business name that inhibits a future owner from using it with great pride is a roadblock to a higher sales price.
Take businesses that name themselves after an individual and use that individual as a focal point in their advertising and marketing. When that owner leaves or sells the business, the entire brand must change. If the business has a fleet of trucks with an image of the former owner on it, the new owner will face thousands of dollars of expensive changes to their marketing.
If you are in startup mode, consider giving your business a non-perishable name. A name that can pass from owner to owner has greater value when it comes time to sell.
Intellectual Property
Beyond proprietary products and services, have you protected your company name, advertising and marketing investments? It’s never too late to trademark or protect a name. Knowing that a name, tag line or other advertising vehicles have been trademarked gives a new owner the assurance that they won’t face expensive marketing costs at the time of a sale.
The same is true for the intellectual property associated with URLs and social media access.
Did you know that whoever establishes a social media account owns that account? If you allow an employee to establish your important URLs and social media pages and then they leave the organization, you can find yourself between a rock and a digital hard place.
Recurring Revenue
Marketing is not just advertising. Marketing relates to how a company sells its products and services, including pricing and business model. A business with recurring revenue has the greatest value and earns higher multiples at the time of a sale.
It’s never too late to add a recurring revenue model to your business in preparation for selling your business. If the Shave Club for Men can create recurring revenue out of selling razor blades, you can find a recurring revenue stream for your business.
If you sell a service, consider adding a monthly subscription for maintenance. If you sell a product, consider selling maintenance on a monthly basis.
Brand Reputation
Perform a Google search for your business right now. What did you find? Plenty of 5-star reviews? Then you are ready to get maximum value when selling your business.
If you have bad reviews, there is still plenty of time to make a change. Every dollar you spend in protecting your online brand reputation will pay dividends when it comes time to sell.
No reviews at all? That’s nearly as bad as having negative reviews. An absence on social media, especially reviews, leaves your business open to others defining you. Negative comments from customers or competitors add up. At the time of your business sale, don’t think a buyer won’t come across these comments.
A great brand reputation also is essential when it comes to recruiting and hiring a quality workforce. Today’s job market is tight. Bad reviews and a bad reputation will result in your pool of potential employees quickly drying up.
Sales Pipeline
EAG Advertising & Marketing has twice been involved in merger discussions. Both times we completed our due diligence and decided that staying our course was our best decision. It seems that what was appealing about our ad agency to other marketing firms was our robust sales pipeline.
People don’t buy companies for what they did in the past. They pay them for what they could do in the future. If your business has no marketing and no prospects in the sales pipeline, you will be less attractive to a future buyer.
A sales pipeline can be created without adding an expensive sales force, but it does take an investment of time and money. Lead generation campaigns are easy to establish and maintain. And, they may be all you need to impress that future buyer.
EBITDA is Not Enough
In today’s market, EBITDA is important but it’s not everything. A dynamic workforce, solid leadership, recurring revenues, long-term customers and yes, marketing, add value to your business.
When is the best time to address building long-term marketing value into your business? Yesterday.