This question has come up a few times, and now again.
Over the decades of experience, I've seen my fair share of business sales. One question often asks: "What's my POS system worth?" It's not as straightforward as you think, so let's dive in.
The Basics of Business Valuation
My clients typically use three methods when pricing their businesses.
Although the number of years varies depending on the company size, three years is generally used here.
You can be assured your buyer will know this method from their search for businesses.
This is often the worst pricing as it almost always gives the lowest value and assumes your company has no goodwill.
But here's the rub—your POS system can be a hindrance if you're not careful.
The POS Puzzle: Determining Its True Value
Your POS system is more than just a fancy till. But how do you value it? Let's break it down:
Software
Software is typically valued at its current purchase price for an up-to-date version without any data. For example, if XYZ Software is selling its latest version for $5,000, that's likely what it's worth.
Hardware
This one's more straightforward—it's usually valued at current market rates.
Data
Now, this is where it gets interesting. Your system might be worth more if it houses valuable information, like an extensive loyalty program. You'll want to discuss this with your business broker.
When Things Go Pear-Shaped: Real-Life Examples
Over the years, I've seen a few deals go south. Here are a couple of examples:
- A seller offloaded a system with inaccurate data, claiming it was all in order. They can end up paying more in legal fees and data clean-up than the system was worth! I have seen that happen.
- Another retailer tried to pass off an old version of their POS software as the latest version. When they found out, the buyer took legal action.
Protecting Yourself: Tips for a Smooth Sale
To avoid these pitfalls, here are my top tips:
- Be honest: If your software is outdated, say so. Transparency is key.
- Clean your data: Ensure the information you supply in your system is as accurate as possible.
- If possible, update your software to the latest version before selling. A five-year-old package is probably worth nothing; an update for $2,000 might bring its worth to $5,000.
The Legal Side: What You Need to Know
Most business sales come with a stack of paperwork. You'll usually find a statement saying that what you're selling is in working order and fit for purpose.
Even if that's somehow missed, consumer protection laws are in place. These laws imply that what you're selling has an implicit warranty, which carries the right of return. It was valued at $5,000 for this system; I think it's defective. Please give me my $5,000 back, and you take your system back.
Preparing Your POS System for Sale
Your POS system needs special attention when you're ready to sell your business. Here's how to prepare it:
Update the software: Ensure your POS system is running the latest version. This shows potential buyers that the system is well-maintained.
Clean up the data: Remove any wrong information.
Organise your records: Compile all documentation related to your POS system, including invoices and warranties.
Secure sensitive information: Develop a plan for transferring customer data securely to the new owner while complying with privacy laws.
Remember, a smooth sale is a good sale. And if you need any help getting your POS system in order before you sell, well, you know who to call.
