Top 5 Qualifiers for Selling Your Business

May 22, 2018Insights, Selling a Business

If you have a buyer and transferability, you have a salable business. But that’s only the beginning. When we start talking about maximizing the sales price, we need to peel back the layers of salability and see just how ready your business truly is, the most important factors being:

 

 

  1. Revenue

If you’re doing tens of millions of dollars in revenue, I can sell your business—even if you’re only pulling, say, $500k in profit. When a business has that kind of horsepower, there is enough money in the machine to get the attention of buyers, who will each be strategizing on how to build the business to turn better profits. You see this frequently in the tech sector, where people invest millions of dollars in companies that lose millions of dollars, because the market share is too intriguing to turn down.

  1. Net Profit

If your revenue is underwhelming, but your bottom line is strong, the two can potentially offset each other. Ideally, you want to have at least $500k in net profit when engaging buyers. Less than that, and you’re running more of a lifestyle business; you’re making money, putting in your time, living a good life, and so on, but that key component of transferability is missing. When you have $500k or more in net profit, you can spend money on advertising, hire people, and grow the company. That’s the type of business buyers want.

  1. Management

So, you have reputable revenue and solid net profit. Things are looking pretty good. Wait, though…it looks like…everyone in the entire company…reports to you? That might hurt your sales price; the same goes if you have a longtime business partner who is ready to get out when you are.

A healthy business includes a senior leadership team besides the owner(s). Do you have tenured staff in training to become leaders? That’ll do. As long as the business doesn’t completely rely on and revolve around you, we’re good.

  1. Market

Some markets just aren’t trending upward. I’d have a hard time selling even the most profitable of taxi cab companies, because ridesharing apps are undoubtedly the future of the taxi industry. Print magazines and newspapers might always hang around, but they don’t show much growth in the foreseeable future. When Amazon bought Whole Foods, independent food distributors took a major hit. If you’re in a market that seems to be sliding, liquidation might be the more viable—and more rewarding—option.

  1. Diversification

Does one client represent 80 percent of your revenue? One product, 80 percent of sales? You’re probably well aware of this already, but that single client or product is your lifeline. Lose that cornerstone, and the complexion of your business changes dramatically. The more you can diversify your business, the lower the risk for buyers—and lowering the risk for buyers is really the name of the game.

Don’t worry if you don’t score an A+ in each area; every business has its strengths and weaknesses. With decades of experience behind us, our job at Exit Consulting Group is to evaluate your business and position it, and you, in the best way possible. If your business is profitable and you are beginning to consider an exit, contact us so we can start building your comprehensive exit strategy.