Going Online to Boost Your Business Value
Q: I'm preparing to sell my manufacturing business sometime within the next few years. I went to a conference recently where they touted the benefits of having a Web site. Will having a Web site and incorporating e-commerce increase the value of my business?
A: Simply having a Web site or obtaining e-commerce capabilities will not result in an implicit increase in the enterprise value of your business. However, leveraging the Internet can help you increase your sales and profitability, which in turn can increase the value of your business. According to Forrester Research, there will be $1.3 trillion in business transacted on the Internet by 2003. Other quick facts: There are 300 million people online worldwide today, 84 million in the United States alone, and that number is expected to double by 2005. There are more than 1 billion Web pages in existence; more than 85 percent are in English. These facts indicated the presence of a staggering opportunity.
Following are some ways the Internet can help you increase your business and, accordingly, increase the fair market value of your company.
Expand markets and increase sales. The Internet allows for the elimination of geographic barriers to reach a wider, more diverse audience. Granted, the simple building of a Web site will not guarantee increased business, but if properly marketed, a Web site can be a very effective means of reaching new and existing customers and expanding your geographic presence.
A Web site provides company "brochureware" that customers/vendors can peruse at any time. Hence, a professional Web site is an important first step in tapping the power of the Web. You may wish to hire a consultant to help you with the marketing of your Web site. Simple tactics such as utilizing search engine optimization tools (making sure your Web site appears toward the top of a list when someone conducts a search) can increase the hit rate on your site significantly. Many larger firms initially gauge the credibility of smaller firms as a business partner by the professionalism of the smaller firm's Web site. Additionally, a Web site offers the ability to capture the information of existing and potential customers to support the efforts of your sales team.
Maximize profitability. The Internet also allows you to increase productivity and streamline automation in your business. Consider the ease of being able to order equipment replacement parts online. Larger U.S. manufacturing companies with international organizations now use the Internet to track their supply chain, work flow and available capacity at overseas plants. In some cases, crowded U.S. manufacturers can e-mail the exact job specifications to another plant across the world to keep a job moving on schedule. In addition, basic site features, such as the capability to accept online orders, can increase sales by allowing for RFP and order acceptance at any hour--in a more convenient form than a facsimile. Lastly, a Web site can reduce expenses associated with the production of brochures and other collateral materials.
Increase customer retention. The Internet provides a company with an additional channel for customer contact and support. Progressive companies today actually allow their customers access to the status of a job via the Internet. This type of partnership approach with customers builds trust and loyalty. E-mail allows for an expeditious exchange of files or specs, and communication such as job updates, new product additions and other news can be inexpensively distributed to your clients through e-mail campaigns containing links to your site.
Overall, a Web site should be viewed as another form of advertising and distribution for the company, and should be utilized in conjunction with traditional methodologies to maximize the presence and profitability of the firm. Keep in mind that value is generally driven by cash flow, and in the end, each foray into a new venture should be judged by the incremental sales and profit contribution to the business.
Loraine MacDonald is director of advisory services at USBX, an investment banking firm specializing in the mergers and acquisitions of small to midsized businesses. She has been involved in the valuation and sale of privately-held businesses for over ten years. She can be reached at email@example.com at (310) 315-6700.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.