Is your business built to sell? When preparing to sell a business you own, it is important to try to see the company from the buyers’ perspective. Your business could hold a lot of hidden value. Focus on restructuring it to highlight elements that enhance it and you could attract a lot more buyers and separate your company from the rest of the pack.
Financial performance will always be a driving force behind a buyer’s interest in a particular business. It is one of the first things they are going to look at, so it could be a deal breaker if your company does not meet their criteria. There are a couple of very important financial indicators that with catch buyers’ attention. One of these is simply keeping good records. Current financials that are organized and thorough help show buyers that your business is well run. Even if the company is making huge profits, errors or missing information in your records have been known to kill a deal. Essentially, if you run a good business, your books need to be able to support that claim.
Another critical financial indicator is cash flow. Obviously, cash is king, but companies that show a lot more cash per sale are seen as more valuable and attractive to investors. This is because these businesses need less working capital to run, and can scale faster. Focus on increasing your cash flow and you will add value to your company very quickly, which will not only attract more buyers, but also allow you to demand a higher asking price and make you more money while you are waiting to sell.
Buyers are looking for the ability to grow and scale a business. Besides cash flow, they are looking for the right product or service in the right market to help the business expand. They also look for recurring revenue potential. Businesses with recurring revenue or subscription models show more income stability and scalability and buyers are willing to pay a lot more for them.
How does your company stack up against the competition? Your business’s uniqueness in the market and competitive advantage will be a key indicator in how well it can expand. Buyers and investors want businesses that can corner the market. They are looking for a product or service that resonates so well with customers that they not only want to keep coming back, but also want to spread the word about it.
Have your finger on the pulse of your customer’s satisfaction. Pay attention to public ratings, or find your own way of surveying customers. This will help you discover ways of improving your customers’ opinions of your business and figure out what you can do to keep them coming back. Improving your customers’ opinions and following their feedback will help you grow your business, and prove its scalability to buyers.
A Strong Foundation
If your business is too heavily dependent on a small group of customers, suppliers, or key employees, buyers will see it as too much of a risk. These are red flags because it shows that your company is one step away from peril. What if your biggest customer takes their business somewhere else, or goes bankrupt? What if your best employee decides to move away, or has unforeseen health issues? A business with a strong foundation can withstand losing a big customer or important staff members. Buyers know this, and they also know that when a business sells, there is a potential of losing customers and employees who aren’t comfortable with the changes. They need a business that will not only survive these casualties, but also remain strong and profitable through them.
Just like a business cannot be too dependent on a small set of customers or employees, it can also not be too dependent on you, the owner. Businesses where the owner is the only employee, or the one that holds all of the knowledge about how to run it, are essentially worthless to buyers. Your business needs to be able to continue to run smoothly and successfully without your intervention. Nobody wants to lose money while trying to figure out how to run your business. Most new business owners are also not looking to spend all of their time trying to run their new business. The majority of buyers are either looking to invest in a business that someone else can operate for them, or looking to start calling their own shots and get away from full-time employment. This is why it is important that you have a reliable support staff, and an operating manual that provides details of all of the business’s operations. You need to be able to show the new potential owner a clear path to transition after the sale and a vision for how they will run the business, without it consuming them.
Paying close attention to these details will help you make your business more appealing to potential buyers. Selling a business can take a long time. You not only have to find the right buyer, but the buyer has to do their due diligence and you both have to agree to terms. In the due diligence process, the buyer’s goal is to discover every little detail about your business, so help them see that it is a good investment for them. Get ahead of the game by making sure that the more they learn about the business, the more appealing it becomes. If you can reduce the red flags and risk factors, and show that you are selling a well-run, successful business with growth potential, you will be able to get buyers more excited. While you only need to find one buyer to purchase your company, the more potential suitors there are, the faster it will sell and the higher your profit will be.
If you need advice on how to successfully increase the value of your Southwest Florida business and market it to potential buyers, contact Corporate Investment Business Brokers (CIBB). We can provide you with a free valuation estimate that will uncover what makes your business valuable, and what is holding it back.