In my last blog, I spoke about questions a business owner needs to ask themselves to determine if they are ready to sell. If the self-inquiry led to an answer of yes, now it’s time to determine if your business is ready to sell. In a way, all businesses are ready to sell, but not necessarily for a price that the owner is looking for.
A buyer purchases a business based on how much money he projects that the business will put in his pocket. Will he get an acceptable return on investment for the money that he invests? Will it pay his salary and at the same time pay off any money borrowed for the purchase? These are questions that the buyer will be asking.
If your business is ready to sell, there are several key financial and operational characteristics the business will have. A few of the financial characteristics are:
- Does the business have growing revenues and profits, with stable or growing profit margins?
- Are the books professionally prepared?
- Is the business current with its vendors and up to date with payroll and other taxes?
Operational characteristics include:
- Do you have a large number of customers, rather than have most of your revenue derived from only a few?
- Do you have contracts with your customers?
- How “assumable” is the management of the company
- Do you have a manager to oversee day to day operations, or do you shoulder the lion’s share of the company management?
- Do you have operation manuals that will allow a new owner to understand how the business flows and is managed?
- Do you have employee manuals that clearly spell out employee policies?
- If applicable, do you have a safety program and safety manuals?
- Do you have an experienced well-trained staff?
- Do you have an attractive facility situated in a good location?
- Do you have a long-term lease or own the property where the business is located?
How’s the market for your business:
- Is the product or services that you are selling in high demand?
- Is the demographics of your location a good fit for your products or services?
Another important consideration revolves around legal issues:
- Are there any pending litigations?
- Are there any current or pending regulatory actions?
In the next blog, I will talk about valuing a business. As you will see, a business’ value will fall into a range based on the sale of similar businesses. After answering the preceding questions, you may realize that your business is not currently ready to sell, at least not for an upper tier price. A business broker can help you navigate these waters.
Until next time, all the best in all that you do!