You’ve worked hard to build your business, and you should be proud of all you’ve achieved! When it comes time to sell, how can you show prospective buyers all the value your business holds? Here are some key characteristics prospective buyers or investors typically seek:
Having your finances in order is a key sign of a well-run, organized operation. A buyer will want to review and consider profit and loss statements, tax records, etc. It is also desirable for documentation to clearly reflect owner salary, including “perks.” Most lenders require three years of tax returns or more, and the most recent financial statement.
This includes operating equipment or machinery, product inventory, as well as, office buildings or warehouses preferably well-kept and in a favorable location, convenient for employees and customers, etc.
A company’s unique processes or systems are a valuable asset. If they are patented, trademarked or copyrighted, it’s even better!
A business that is growing steadily each year is highly desirable.
An established Sales team indicates potential growth. New customers mean new revenue streams.
Customers are a good indicator of the health of a business. Prospective buyers (and their lenders) will want to see a mix of many customers, including both long-term and new customers, none of which individually accounts for more than 20% of revenues.
When a business operates smoothly without the daily oversight or involvement of the owner, transition to a new owner likely will not affect business performance as dramatically as a situation where the owner is actively involved in daily operation.
Your employees are one of your greatest assets. A new owner will likely want to lean on the institutional knowledge and experience of your employees (possibly including you) to ensure the business continues to operate smoothly. Additionally, they’ll want to keep established customer relationships intact. Tip: Buyers often appreciate when a seller is willing to stay on board to help the new owner through a defined period of time.
A strategic plan outlining goals and objectives will help the new owner understand and assume leadership of the business in pursing the established goals.
A website designed to inform and enable customer purchases is a highly-desirable asset.
Large Customer Concentration
Companies with one or more customers that individually account for a significant portion of the company’s annual revenue (20% or more) present increased risk because the loss of one such customer would mean a significant revenue loss for the company. A diverse customer base is best.
When selling your business, avoid pitfalls that prospective buyers and lenders want to sidestep:
Poor Financial State
The financial health of the company is probably the most fundamental factor prospective buyers consider. They will want to avoid companies with these red flags:
Unclear Reason for Selling
Prospective buyers will want to know why the owner is selling their business. If the owner doesn’t provide a good reason for selling, buyers may question the viability of the company. Common reasons acceptable to most buyers include retirement or desire to pursue other ventures/investments.
Contact the experts at Boardroom Brokers, Inc. to help you at every step of the selling process:
1
Create an exit strategy
2
Valuate your business
3
Evaluate potential buyers
4
Market and source potential buyers
5
Review and evaluate letters of intent and purchase agreements
6
Negotiate
7
Business transition
8
Close the sale
