Don’t leave preparing your business for your exit until it’s too late
Several times a week I talk to people who want to sell their businesses. Unfortunately, in most cases, the owners who want to exit the business have not done the work necessary to ensure their business will be valuable to a new owner.
This is tragic because the current owners could end up shutting down the business or spend years getting it ready for sale instead of living their dreams. If these owners had systematically developed their businesses, they would have been saleable.
Here is what buyers are looking for when they come knocking to see if you are interested in selling.
Buyers want a profitable business. Without profits, business purchases are very, very difficult to justify. Unless you have considerable value in your assets, your business is essentially worth nothing. Therefore, the first thing you need to do is improve your profitability. The higher your profitability, the more likely you are to get a high valuation of your business and the greater chance you have of selling your business.
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A business that is not reliant on you. It seems most of the business buyers we are working with are looking for a business that is not reliant on the owner for the day-to-day operations. Businesses run remotely seem to be of more interest to prospective buyers than businesses where the owners are engaged in the day-to-day operations. In speaking to business owners looking to sell, one key piece of advice I give is to build a management team where your input is more visionary and less operational.
A stable business: According to a 2017 BDC study, 61 percent of business buyers are looking for a stable business with consistent sales. Peaks and valleys in your revenue over a period of time can be a deterrent to prospective buyers. A critical concept to selling your business is clarifying how you can have consistent revenue streams year-round and year after year. Consistency also includes ensuring that your team is stable. A team with low turnover indicates to buyers that you have a culture that people want to be a part of and, therefore, one less worry for them after acquiring your company.
Growth potential: When we work with buyers, we often hear that they are willing to buy a business at any given price if there is an opportunity for growing the business and paying for the investment quickly. If you have a business that is in decline or has little potential for growth, your chances of selling your business are slim.
Diversification or consolidation. Your business is valuable if you are a strong competitor or have a specialized market niche. Often, business buyers come from the same or similar industries and may be looking to purchase increased sales or specialized skills. Your business is valuable if you have proven that you own your corner of the market and have a team that understands your profitable niche.
Don’t leave preparing your business for your exit until it’s too late! Start the conversation with your family and your trusted advisors early to enable them to support you as you exit your company.
Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc.
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