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Small Business Secret #6: No Customer Database - No Goodwill
If you are thinking about building a small business or buying an existing business, the number one tool every small business must have is a customer database. Without a good quality customer database, you will have no Goodwill when you decided to sell or exit your business. It is that important that without it, you will lose over half of the value of your business when you goto sell your business.
Let me explain … why the customer database is so important?
The role of the customer database is to tell the history and the story of your customers over a period of time. Many accountants will tell you that your customer database is your accounting package like MYOB and QUICKEN. In fact, I will tell you now that if you only use these applications you are seriously restricting the success of your business as accounting packages do not tell you the full history of the relationship between you and your customers.
The customer database is the most important tool in your whole business. It contains every bit of information about your customers where as the accounting system only contains basic contact information and what they have purchased. The sort of information that you want to store in your customer database does varies depending on the type of business you actually have.
The sort of information I would generally expect in the customer database are things like, their contact information, products they are interested in, information about what they are expecting from you, when you have contacted them and what they discussed, what marketing material you sent to them and whether they bought off that marketing material, what adverts brought them to you, what their average dollar sale is, what their predicted long term value is, any special deals you have done with them and much much more.
What I recommend to every small business owner is to try and locate an industry specific customer database. Pretty much every industry has its own customized system which focuses on the issues related to your business. If your industry does not have one, then it is really important that you invest the money into building one that addresses the issues of customer management for your industry.
Over the last few years my team and I have built a number of industry specific databases for industries like the car cleaning business, the sewing machine sales and repair industry, the carpet cleaning industry, the recruitment industry, the manufacturing industry and so forth. In each and every case, their requirements for their customer management system were very different.
In the case of the Sewing Machine industry, there value in their business was being able to track and manage the actual sewing machine not the customer. It was more important for them to be able to know what repair work was done on the machine and how many different people had owned it. The real money in the sewing machine industry is in repairs and sales of their material etc.
Where as, in the carpet cleaning industry, the most important element to track and manage in their industry is in fact the homes that they clean not the customers. This was particularly important when you are doing housing rental carpet cleaning. In this industry, renter's can be a very deceptive group of people; one of my clients had a situation arise where the renter actually accused her carpet cleaning company of wrecking the carpet and staining the carpet and not them.
Well because my client had tracked the history of the carpet in that house, they were able to prove to the Real Estate agent, what stains were originally in the house from previous work to what was in there now. In fact, because they photograph every house once they start and when they finish, they had a full photo history of this house on file. They were able to show to the real estate agent the full history of work carried out and which stains were permanent and what were new and this meant the previous renter had to foot the full bill for the damage they had done not our client.
If my client had not invested in building this customized carpet cleaning customer database, then she could have been in a real bind. Further to this, when my client decided to sell her business, she got three times what others were getting for their carpet cleaning business, because of the value that was found in her customer database.
The company that bought her out was a National Carpet Cleaning Company and they wanted her business because of the customer history she had. This is a perfect example of how the Customer Database illustrated the true value of the Goodwill in her business to the prospective buyer. I should note, she now drives around in a white Mercedes because of the money she earned from the sale of her business.
Customer databases do not need to be expensive and they can be easily built in Microsoft Office applications like Microsoft Access. The reason many companies are using Microsoft Access is because of the ease of being able to build the systems and get people to help them. What a lot of companies do is to train one person in using Microsoft Access and then get them to build the database as part of their job. Alternatively, there are lots of Microsoft Access Developers out in the market place and they are really cost effective to hire. Always though check with previous clients to see what they thought of their work and how good they really were.
Look the bottom line is this, in the fifteen different clients that we have built databases for and then have sold their businesses, in every case their accountants have stated categorically that the reason they had the allocation of goodwill they achieved was simply due to their high quality, high detail customer database.
Remember this - No Customer Database - No Goodwill
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