| The Patriot Ledger
When you decide to sell your business, it might feel like you just need to check off a few boxes and compile information pertinent to the sale — from detailed historical revenue documentation and cash flow projections.
But a critical item may be missing from this list of “must haves” — a thorough understanding of the profitability of your products and services.
A deeper look at profitability
Business owners might balk at the idea of profitability assessments; after all, profitability seems like a familiar and simple concept. If revenue from the sale of your products and services is greater than direct expenses of those products and services, then the business is profitable. While this could be true, this simple understanding of profitability comes far from telling the whole truth.
A profitability assessment provides a full understanding of the cost structure of a business, which includes all overhead, selling, marketing, and general and administrative costs. Once complete, the profitability assessment can isolate profitability by customers, industry, geography, product or service lines, and sales teams, which can greatly assist your decision making.
More than just dollars and cents
CLA’s discovery, assessment, and reporting are crucial for an effective profitability assessment.
- Discovery — Explore and understand the business, from its operating model and processes to its systems and team. If you’re not deeply familiar with the raw data of a business, this is the point at which you should rectify that.
- Assessment — The findings from the discovery phase are then analyzed and synthesized to bring into focus a clearer vision of the desired target state and what is required to achieve these goals.
- Reporting — With both data and analysis in hand, a detailed report of the findings can identify, define, and prioritize initiatives, creating an actionable roadmap for the future of the business.
Objectivity in these assessments can be challenging when you’re preparing to sell your business. We encourage you to get assistance from a team with relevant experience to help create an honest assessment of your business’s profitability.
For more information contact Michael LaCrosse, principal, at email@example.com.
CLA exists to create opportunities for our clients, our people, and our communities through industry-focused wealth advisory, outsourcing, audit, tax, and consulting services. For more information visit CLAconnect.com.