Spend or Don't Spend?
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In every business there are always things that require spending or reinvestment. This can be capital expenditure, revenue expenditure, discretionary spending, etc. Whether or not to invest (or reinvest) in the business is a common problem for business owners to contemplate when selling. How much to spend or invest on the business? Too much expense can be a waste, not enough and the business will be less valuable in a sale. What is the right way to go? The answer is that there is no right or wrong way, but there are a few points that provide guidance in this situation. These are:
1. Always act is if you were intending to keep the business for at least another twelve months.
2. It is easy to save money and elect not to spend on upgrading equipment, or renewing advertising, but this is usually “false economy” as the money will need to be spent eventually, and the Buyer is probably likely to take it off the asking price.
3. Do not make major capital investment if possible. If capital investment cannot be avoided it may be a good idea to consider leasing the asset rather than owning it so that the new owners can take over the lease, and claim the tax benefits – which you can claim whilst you continue to own and operate the business.
4. Never try to save money by “doing it yourself”, engage the best people and the best advisors to help you make decisions.
5. Do not be afraid to allow a reasonable budget for advertising and marketing the business for sale. You want to be sure that you have given yourself the very best opportunity to sell at the very best possible price by ensuring that the business is properly exposed to the widest possible audience. This is how to “create demand”.
6. Continue normal spending and investment in advertising and marketing. If you show a large increase in spending prior to selling it creates a bad (and often misleading) impression that the advertising was just done to “pump-up” turnover to sell the business.
7. If you have a retail store in a major shopping centre, and it will require a refit at sometime in the near future, it is better to try and arrange the sale so that the new owner is able to complete the refit to their liking. If the refit is required now, it is probably better to do the refit now, then get a new lease and then sell the business after having secured a long secure lease.
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