For the better part of a decade, I worked for a family-owned conglomerate and looked for businesses for them to buy. We’d look seriously at ten or so businesses a year, where we’d build a financial forecast, build a valuation, research their customers and market dynamics, meet the key leadership team, etc. Of those ten, we’d only bid on 3 – 4, and we’d be lucky to close 1 – 2 deals.
We spent a lot of time kissing frogs that turned out not to be “princes” because most business owners didn’t build their business with the attributes that buyers wanted! If you want the option to sell your business for a good value down the line, you need to build these things in from the start!
Buyers want a solid leadership team in place.
When it comes time to sell your business the buyer doesn’t want the success of the firm to depend on you (or anyone related to you)! They assume you are leaving (and in many cases want you to leave). They want to see a team that can operate the business successfully once you are gone.
Are you building a team that can work independently from you? That can keep the wheels on the bus when you are on a long vacation?
Buyers value cashflow above everything else.
When you put a value on a business the biggest variable in the equation is cash flow. How much money does the business produce, that you (or the new owners) can take out of the business each year? The more the cash flow, the more someone will pay you for the business! That means keeping costs low and getting good value for your work. Consistency is also important — steady cash is worth more than one big year followed by a down year.
Are you building a business that produces a lot of cash? That operates on high margins consistently? Are you paying yourself well? How well can you predict your future cash flow?
Buyers want to see long term contracts.
I know a lot of business owners who prefer to “do business on a handshake, without complicated contracts.” (Heck, I’m one of them!) But when the day comes to sell your business the buyer’s biggest worry is retaining your clients, and there’s nothing like a contract to ease their fears!
Do you have contracts in place with your clients that help secure their business for the long-term? How could you start putting those in place?
You may not be ready to sell your business now, but don’t you want to have that option at some point? Building these key things today will get you a bigger number when that day comes.
