We have several legacy product lines that generate decent revenue but have terrible margins and require a lot of support. How do we use the V/TO® to decide whether to kill these low-margin lines before we go to market or let the buyer handle them?

Question

Tyler Smith · Accepted Answer

Many owners make the mistake of keeping low-margin revenue on the books because they think a larger top-line number looks better to buyers. In reality, sophisticated buyers value profitability and operational focus far more than empty revenue.

To make this decision, look at your V/TO®. Revisit your core focus and your target market. If these legacy product lines do not align with your core focus, they are likely draining your resources and distracting your leadership team from high-margin growth.

Next, run a profitability analysis on each product line. Calculate the true fully-burdened margin, including the customer support hours and administrative overhead required to sustain them.

If a product line has low margins and high operational complexity, kill it or sell it off before you go to market. This pruning process will instantly improve your overall profit margin, simplify your operations, and make your business much easier for a buyer to integrate. A clean, high-margin business will always command a higher valuation multiple than a bloated, complex one.