Sell your business is a very big decision and one that should not be made lightly. In fact, some sources suggest that you should prepare for the eventual sale of your business right from its very inception. In any event, once you’ve decided to sell, there are several things to have in place prior to beginning the sale process and get a business valuation.
Growing Profits and Revenue
A growing business is a healthy business and it’s what buyers like to see. Profits are the most important component of this equation but growing revenue is significant as well. If buyers see declining profits or flat profits with growing revenue, you better have good reasons for this.
Worse yet, is declining profits and revenue as this is a clear signal of a problem with the business. Again, be prepared for some pointed questions as to why this is occurring and what, if any, remedy is available to fix it.
This is not to say that the business cannot be sold, but it generally means it will be sold for less than a comparable business showing growth. Most businesses are valued, based on a multiple of EBITDA or more informally speaking, profit. Industry and location dependent, the financial performance over the last three years determines whether this multiple will go up or down.
Strong Management in Place
This is particularly important with larger businesses as buyers want the stability of a management team and are often not planning to be involved in the day to day running of the business. Having a management team in place is also a key differentiator between a “business” and “self employment”.
Not having a management team is often referred to as “owner dependency”. Meaning, that the seller and the business are one in the same; it’s less of a “business”, but more of a self-employment opportunity for a buyer. This type of business can sometimes be less sellable as there is a positional void that must be filled once the owner vacates. This situation is an ideal opportunity for a buyer who is looking to “buy” a job.
Most prospective buyers will want the seller to remain on board for a year or two to ensure a smooth transition. Having a strong management team in place will not only make your business highly attractive to buyers, it will affect an easier transition overall.
Companies that have recurring revenue streams are also very attractive to buyers. Cash flow is highly appealing and having a strong customer base is preeminent. Businesses that provide “one off” products or services can seem risky to buyers as the marketing process must start from scratch after every sales transaction. Having at least some recurring revenue in place serves as an anchor and a comfort for potential buyers.
Room to Grow
A business operating in a mature or declining industry can have difficulty attracting buyers.
That being said, there are players in every industry who can find opportunities notwithstanding the current market situation. Sometimes this is done by becoming more efficient or improving on technology to squeeze more profits from a lumbering sector.
Whatever the reason or process, being able to show prospective buyers where and why the business can grow is a very good thing. Being able to demonstrate potential growth plays into the psychology of buying. Purchasers look at the purchase price, the profits generated, what their return on investment will be and how long it will take to get that ROI. It definitely helps if they can see where and how the business can grow, even if only incrementally.
Every business today is being, or soon will be, disrupted in some way, shape or form.
Despite the monumentous advances in digital technology, bandwidth, apps and smartphones, we are still seeing new technological developments every year. It is important that your business is keeping up with your industry competitors. Ideally, you should position your business to be an industry leader in terms of technology and digital marketing strategy - strive to be leading edge, not bleeding edge.
No Need to Sell
The very best attribute your business can have when you prepare to sell is that there is no “need” to sell. A solid, profitable, growing and well run business is a thing of beauty and something every buyer wants and will pay a premium for.
A business owner who “must” sell for whatever reason, is going to yield a discounted selling price. If there is no need to sell a successful business, time is on the seller’s side and the company increases in value everyday. Prospective buyers can see that growth and realize that the purchase price is going up everyday - they therefore want to buy sooner rather than later.
Bonus Tip - Someone on Your Side
Tresle is an tech-enabled platform that helps both small and large businesses simplify their transition in ownership. Tresle sellers have access to various tools, processes, and a proprietary list of thousands of qualified buyers in order to source the best successor for their business.
For business owners with company revenues $2M to $100M, Tresle offers a variety of custom offerings tailored to your unique business needs. As a Tresle Plus client, you will work alongside our team of industry experts on an individual basis to implement and customize your success for the sale of your business.