According to a professional business executive, purchasing a functioning business is much better than starting your own. That’s why anyone planning to sell their business must ensure it’s not just irresistible but has all the critical elements any buyer would be persuaded by. These factors determine the attractiveness of the business and to a certain extent, its value. In fact, the most important thing to remember before you decide to sell your business is that if it’s not valuable to you it probably won’t be useful to another. 50 percent of entrepreneurs who don’t make their businesses attractive end up with a miserable experience after concluding the deal.
Here are 12 factors that can help you ensure your business is salable, valuable and attractive to potential buyers.
1. Mind financial history and performance
In most cases, your business, like millions of others out there, will be valued differently from the way you see it. Profit made over the years and the amount of sales made will be critical when it comes to valuing it. In most cases however, smaller businesses are always seen as a huge risk and thus discounted, whether they do get handsome deals and big sales constantly or not. As a result, aiming at building the business into a bigger company is always better.
Related: How to Value a Business
Every buyer wants to see evidence of money making and profit for a minimum of two years. No one wants to invest in a business that’s losing money. Income produced should be sufficient enough to cater for all the needs of the business with some good profit on top. Of course, new start-ups and businesses facing challenges such as a general financial meltdown would be looked at differently. But if your company isn’t making money and good profits you’ve a lot of explaining to do to potential buyers.
2. Repeatable revenue formula
When it comes to selling any business always ensure that you’ve built a recurring revenue formula. This means services or products are sold over and over again. For example, baby formula is consumed and bought again and again. It’s also important for a healthy business to have some long-term clients, customers and active contracts. A potential buyer would love to hear and see these testaments of ongoing business and would have no qualms taking them over.
It’s actually important to make this clear from the start. These can be profitable contracts to deliver products or services to a specific organization for a specified duration. Don’t just stop at ongoing ones but also indicate those that are almost being signed and potential ones you’re already working on. The possibility of owning a business that’s actually making money is irresistible to any potential business buyer.
3. The location of the business
If the business requires a proper location to run efficiently, a potential buyer will pay extra attention to that. Businesses that require a physical location will be scrutinized to ascertain different things to the satisfaction of an interested buyer. For instance, the size of the population served will be important and whether it supports the business well. The outlook of the local economy would also be looked at and whether demographics targeted really work for the business. For example, if the business targets a retirement community, one with young families and children might not be a super fit.
You need to also ensure the values of the company and style of business actually match. An expensive store mightn’t work in a casual, middle income neighborhood for instance. Also make it clear whether you own the business premises or leasing it. You can make it lucrative and persuasive if the space is rented for a longer period of time with renewal options in coming years. Of course, if you own the space the value of your business will shoot up.
4. Adoptable/teachable systems of operation
Right of the bat no one wants to purchase a business that is so hard to master. It’s rather hard to sell any venture to anyone if they probably will need you around to make any headway. A business easy to sell has systems that can be taught to others and can run without you around. Once you’ve sold the company the buyer should be able to continue running it without any issue they can’t deal with. It’s also important to ensure the team that you’ve and any other that will come is able to run the business without the need to always be in touch with you.
5. Strong management team
Together with easily teachable and adoptable systems is a perfectly working management team. If your business is to attract great buyers it must not seem like only you can keep things going and there’s no one else to drive the business to success once you aren’t around. As such, you must take time way before you consider selling the company to build a strong team with clear management structures. When prospective buyers see the team that you have they’d be interested. They must feel they won’t be investing in a person who owns the company but investing in a well-managed business that even when the founder is long gone it still continues to grow.
6. Uniqueness sells
What most business buyers will be on the lookout for is a unique company in different ways. Firstly, any purchaser would want an investment with better competitive advantage than most out there and able to surmount any competition. Prepping a business for takeover takes time as you grow and make the right decisions. Always ensure competitors in the industry know that to match your success, model, profits and growth they’ll have to dedicate so much in terms of effort, funds and time. They must clearly be led to believe that by competing with you they don’t stand a chance. Don’t ignore the value unique trademarks, products, patents, copyrights and way of doing business have and how fast they will persuade any buyer. Work at ensuring your business has unique offerings that cannot be replicated and any person would love to own and invest in. Seek to make your trademark, brand, business name or even domain name so unique that any potential buyer would want to own them.
7. Satisfied customers
Unsatisfied customers are anathema to any business with growth prospects. It’s almost impossible to really grow and sell your business to anyone if customer satisfaction isn’t so good. Being there for your customers and growing with them will see your value go up. A clear sign of a failing business is a host of unhappy customers who might prefer a competitor leaving the company on its death bed. Investing in building prospective buyers and cultivating customer loyalty creates a special bond between the business and customers, forging positive customer satisfaction. Any buyer would definitely want to know how you deal with unhappy customers and if there’s anything to worry about in that area.
8. Avoid customer concentration/Manage huge value clients
The signs that a business could collapse will see any interested buyer move on swiftly. A big sign most business owners won’t ignore are huge value clients and customer concentration. When you’ve lots of big valuable clients your business will probably grow very fast and make big profits within no time. However, if such huge clients form the bedrock of your business it could be in trouble, especially if these critical clients make up over 15 percent of the entire company.
It’s even worse when your profitability or revenue is from just one customer who represents over 10 percent or 20-25 percent of your business concentrated on a single customer. Any interested business buyer would be scared to own such a business where the departure of a big client could see a huge dent on your profits. Balancing the type of clients you attract and acquiring fresh and sufficient business would ensure that even if big clients left your profits and sales won’t be affected. Every interested buyer should be able to deduce this from the onset.
9. How’s the cash flow?
Always know that potential buyers will definitely want to peruse your cash flow and try to understand how you finance your operations and growth. Interested business buyers are always on the lookout for investments capable of financing their own operations, marketing strategies and growth internally without the need of injecting more capital from elsewhere and are considered more valuable. Note that if a potential business buyer realizes that your business will require more money equal to the buying price or more to keep it afloat and drive its value they probably won’t be interested. Work towards making your financial handling efficient, holding on to funds and encouraging steady growth. With time, the business will have a sure cash flow that caters for all internal business operations increasing its overall value attracting more takers in the process.
10. Are your statistics compelling?
One important aspect of making any business easy to sell is ensuring all the information potential buyers will need is compelling. Buyers are always on the lookout for some specific metrics and you must be prepared well. Most importantly, you must be able to address your market size and show the number of customers buying your services or products within the market. It should also be clear from your statistics your penetration rate clearly showing the number of individuals purchasing your commodity currently and the potential number of users that could be reached, including making it clear the cost of acquiring each customer and how much you invest for this exercise.
11. Work on a reliable accounting system
One obstacle to a successful company sale is the way financial statements are handled. Potential buyers would definitely want to scrutinize your accounting books and peruse financial statements. It pays handsomely to ensure your accounting system is perfect and produces highly useful financial paperwork. A properly done accounting system gives confidence to potential business buyers that all paperwork before them is as it is. On the contrary, poorly kept financial records and meaningless paperwork will nurture doubts and distrust in the mind of the possible buyer. It would appear like you’re hiding something.
Also, unreliable accounting systems mean you probably don’t understand your business due to the chaotic paperwork. At times, a proper accounting culture could take a while to build and grow with. Making your business easy to sell could take a while and it’s in your best interest to take time to build a working accounting process that builds confidence and not skepticism and mistrust.
12. Well maintained equipment, machinery and premises
If your business requires machinery and different types of specialized equipment to run, ensure they’re well maintained and repaired. The rule of the thumb is to always maintain everything in such a state that you would actually love purchasing such a company were you the potential buyer. Well maintained and repaired premises and equipment also mean the business is always running smoothly and the possible buyer would have zero problems running the business on equipment, buildings and machinery that actually work. Even if you’re making good profit and growing the business steadily, any buyer would be put off by shoddily maintained equipment and machinery and premises in total disrepair.
Obviously, these factors are not exhaustive but can help you start prepping your business today to sell it easily and fast tomorrow. The process could take years to get things in order but the outcome will be worth it every step of the way.