Planning to Sell Your Business? - Know How Saleable Your Business Really Is
It's critically important to view your business from the perspective of a buyer, especially if you think your business should garner a premium price. Then your focus should turn to eliminating the negatives while accentuating or enhancing the positives.
Evaluating the Saleability of your Business
Potential buyers may have a number of criteria they include in considering the purchase of a business, but the core elements can be categorized as follows:
- Market position
It almost always comes down to the bottom-line. Is your business profitable? Equally important, however, is the multi-year trend going backward and forward. One or two years of profits may not be enough unless the recent trend shows steadily increasing revenue and there is a realistic forecast of continued growth going forward.
Buyers will next want to know how solvent the business is - essentially determining its net worth. Buyers want to know that the business liabilities are exceeded by its assets; and if there are liabilities, they want assurance that the current revenue is sufficient to cover the debt payments while maintaining profitability. The bottom-line is the less debt on the books, the better for attracting good buyers.
Businesses that have successfully differentiated themselves in the market are especially attractive. A business can establish a strong market position through successful branding, distinct products and services, or innovative operational processes. Buyers consider all of these when determining the market position of the business and its ability to retain or build on it.
Business owners know that employees are the backbone of a successful business, and so do prospective buyers. They will typically evaluate the experience and abilities of your employees and management staff. If buyers determine that certain employees will be a drag on the business during or after the transition, they will view it as a cost to the business, which will translate to a lower offering price. For certain key employees the buyers deem as essential, they may want to know that they are “locked in” with a contractual agreement.
Unquestionably, the business's customers are its most valuable asset. Your customer base - its size, its diversity, its loyalty to the brand (and not you), and its growth potential - is a key determinant in how buyers value your business. Is your customer base diversified among several industries and types of companies, or is it too concentrated, increasing the risk that the loss of one company could severely impact revenue forecasts?
Are You Expendable?
One last, but very important factor buyers consider is how expendable you are. Much to the chagrin of some business owners, a business is much more attractive to a buyer when the owner is not an important part of the day-to-day operations. While it might be hard to admit that your business doesn’t need you, the fact is that by making yourself expendable, your business is more valuable.