Reduce expenses, increase value
Reducing certain types of expenses can immediately increase the value of your business and boost your borrowing capabilities. If your plans include applying for a commercial loan or you’ve thought about selling your business, consider implementing an expense reduction program now.
It’s a simple concept. Banks and buyers use projected cash flow based on historical and current performance when making decisions. Reducing expenses for communications, insurance, supplies, energy, shipping, merchant services and other recurring costs will save money now and increase projected earnings. Prior year financial performance will be adjusted to reflect the cost structure moving forward. Business owners know that lower costs improve the bottom line. However, the impact on enterprise value and borrowing capacity is magnified and not as apparent.
An expense decrease of $100,000 per year could increase the value and borrowing capacity of your business by $300,000 to $700,000. The key to this approach is taking action now. You get credit for what you do, not what could have been done, especially when selling a business.
The most efficient way to implement an expense reduction program is to work with a professional that can help identify ways to lower costs in multiple areas of your business. Need a referral to someone specializing in your type of business? Email us at email@example.com can we’ll refer you to someone in your area.