Tech upgrades: What pays off, what doesn't
January 26, 2009: 7:32 PM ETLooking to sell your business? Some technology investments are worth the cost.
DC Kirstein, Softcare Computer Consulting Co., Pittsburgh
Do you have any articles that link updating your company's technology and selling your business? I believe that simply improving a company's technology can help increase its resale value. Is this true?
By Christina Crapanzano, CNNMoney.com contributor
It's easy to measure the effect remodeling or upgrading infrastructure like windows or plumbing has on the resale value of a typical home. Not so with a small business - there are very few metrics on how to quantify the value of a company. The Small Business Administration does not keep data on small business sales, according to spokesman John McDowell.
A technology investment that directly helps a business's bottom line will pay off for a seller - but only once it's already paying off for the business. The number-one thing most potential buyers will care about is a company's cash flow.
"Buyers pay for what you have already built, and they buy it so it can grow," says Domenic Rinaldi, managing partner of Chicagoland Sunbelt Business Brokers.
Mike Handelsman, general manager of sales site BizBuySell, backed that assessment. "It depends on whether the technology relates directly to the ability to impact revenue or cash flow," he said. "For example, adding a technology can allow you to tap into a new customer base, increasing revenue." But what buyers will reward is the new revenue stream, not the underlying infrastructure behind it.
Why it is so hard to value a business? Many of a company's best assets are intangible: Its brand recognition, its staffers' skills, its supplier relationships. The motives of the buyer also come into play.
"There are a lot of moving pieces," says Dick Leslie of San Diego's SCORE, a businesses counseling organization. "Are they buying your customer base? Do they like your location?"
Even without statistical evidence of higher resale prices, small business advisors recommend keeping the technology you need for your daily operations current and investing strategically in systems and equipment that will add value. This is especially key for companies in the information technology (IT) field: "If you're trying to sell technology, you really need to be at the forefront," Leslie says.
Ramon Ray, a small business technology advisor for AllBusiness.com, notes that technology is only one element of business growth. To get the most from your IT investments, you need good leadership, efficient business processes and savvy financial management. Well-implemented systems for managing your company's finances, employees, vendors and clients can pay off handsomely - but botched deployments of new systems are expensive and frustrating mistakes.
Fast working computers for your office and good security systems are must-haves these days. If you have those basics covered, Ray recommends looking at your customer relationship management (CRM) system as a good investment opportunity.
"Without customers, you have no money," Ray said. "Overall, systems that affect how you work with customers - order fulfillment, for example - are of particular significance."
Except in specialized fields, equipment is a commodity. Investments in software and systems will pay off more than sinking cash into the latest-and-greatest in office PCs or printers. Fortunately, software investments don't have to be expensive. Leslie recommends that companies look into "Web 2.0" applications: Web-based systems managed remotely. Salesforce.com (CRM), NetSuite (N), and Google Apps (GOOG) are examples of online business-management applications popular with small companies.
"Those things can be bought pretty inexpensively," Leslie says. "Web 2.0 applications that allow clients to interact with the company are of significant value."
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Related links:
Finding the best broker for your business
Selling your business and keeping the gains
