Maybe YOU are ready to sell your small business, but do you know if your BUSINESS is ready to be sold? Would you like to start figuring it out? Here are three really important areas to evaluate.
Great financials are a wonderful enticement for a potential buyer. Some financial performance indicators that a buyer will look for are:
- A consistently increasing profit trend for the past 3 to 5 years
- A strong balance sheet
- A positive cashflow
- The ability for the new owner to earn at least $100,000 per year
There are many, many other financial areas that will be investigated by a buyer, but strong answers to the points above will be a fantastic foundation for a sale.
The company’s real estate arrangement is of huge interest to a potential buyer. I found that it was one of the earliest topics that I was asked about. We gave a lot of thought, for a long time, about our business real estate situation because of our answers to the questions below.
- If you own your property do you need or want to sell it with the business? Could you make a deal work either way?
- Would you be willing to discount the business if the buyer bought the property, too?
- Maybe you prefer to maintain ownership of the real estate and collect rent from the buyer.
- If you have a lease, is it transferrable?
- How much time is left on the lease?
- Are there special requirements for a lessee, such as a minimum net worth stipulation or a personal guarantee?
If you lease facilities, typically a buyer would like to inherit a long term, transferrable agreement. However, there are exceptions. Perhaps a buyer has their own offices/buildings and they don’t need yours. So then, the lease termination obligation will need to be factored into the transaction.
If you own the property, your ability to be flexible regarding selling it, or keeping it, will give you leverage to work out a great deal. It will help you to attract the greatest number of potential buyers by eliminating a deal stopper.
There are pros and cons for each real estate situation. There is no one answer!
Understanding your existing commitments and having a plan to work through various scenarios will be instrumental to making the most money possible from your sale.
Products and Services
The products and services that your company offers will attract buyers for numerous reasons. Maybe, it has always been a buyer’s dream to be in your industry. Perhaps a buyer sells to the same customers as you do, and your product line will give him/her a quick and easy growth spurt. Sometimes buyers like to buy a company to get them out of the market as a competitor. Whatever their motivation, important aspects of your product line will be inspected:
- Is the market for your products growing, on a flat line or on a downward trend?
- If a new owner and his/her staff needed to, could they easily learn your product line?
- Pricing is critical! Are your offerings priced to make a good profit?
- Critical components and/or support services for your product line need to be available from multiple vendors. A potential buyer will be hesitant to invest in a business that will fail if a source dried up.
- If another business owner is interested in your enterprise, hopefully, you will be familiar with their existing product line at the start of the buy/sell discussions. If not, thanks to the internet, you can probably find out a most of what you need to know. Then you can speak knowledgeably about how your great products will benefit their bottom line. That should help them to see the value of paying your asking price.
Analyzing the financial condition of your company, the company’s real estate situation and the strategic advantage of your products and services will help you create a first-rate business sale plan. It will be the basis to avoid deal killers, shorten the sales cycle and maximize your price. Who wouldn’t what that?