How To Make Your Business Attractive To Buyers (Even if You Don’t Sell)
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Tom Stimson
July 30, 2021

As a business owner, you should always be thinking about your exit strategy. Even if retirement isn’t an immediate priority, it’s important to consider what will happen to your business when you decide to step away. 

For some owners, transferring ownership to a family member, associate, or employee may be the best option. For most owners, though, selling the business will be the best route to take. 

What about your business? Even if you decide that selling your business best suits your personal and financial goals, is your business sellable

This is a question I hear a lot from my advisory clients. The simple answer is that every business is sellable. There’s a potential buyer for any enterprise. But there’s also a catch: it may not be the buyer you want. 

The real question you should be asking is, “Is my business sellable to the right buyer at the right price?” This may sound like a nuanced difference, but the implications are massive.

To sell your business to the right buyer at the right price, you need to start by taking an honest look at how you value your business. This will help you make your exit strategy as viable and profitable as possible. 

Why Most Owners Fail To Properly Value Their Business

Many owners believe their business isn’t sellable even to the right buyer, but just as many owners believe the opposite. From my experience, both can be wrong. 

For a business to be sellable to the right buyer, the owner’s interpretation of how that business should be valued has to align with the buyer’s interpretation. 

It makes perfect sense in theory. But when it’s your business, things can get fuzzy. Your business is personal to you, and it’s easy for your emotions to get in the way of making an honest, fair assessment. 

In many ways, selling a business is a lot like selling a home. 

Let’s say you’ve lived in your house for 35 years. It represents memories and experiences that hold a special place for you. You know how much work and time you spent remodeling the kitchen. You remember your kids’ excitement when you had the pool installed. Furthermore, you know how the giant oak tree in the front yard is perfectly placed to shade you from the summer sun as you enjoy your morning coffee. 

These pleasant memories and insights may lead you to place a higher value on your home than a potential buyer, who is mainly concerned with square footage, location, and the number of bedrooms and bathrooms. 

They are looking for value that might not be apparent to you.

On the other hand, you may be selling a home you purchased as an investment property. It’s in a great location, but the house is dated, and you’ve always planned to do a full remodel. 

You believe that unless you renovate, you won’t get the maximum return on your investment. And while that could be true, because of the location and size of the home, the best decision could be to allow a new owner to remodel it the way they want to. 

The same is true for your business. You often only see it from your perspective, permeated by memories of hard work, struggles, successes, and time spent. But when you go to sell, all that matters is how others see it. 

If you only look at your business through an owner’s lens, you’ll miss opportunities to make decisions that improve its value to potential buyers. To sell to the right buyer, you need to consider what’s valuable to them

Focus on What the Right Buyer Will Value

Just as in selling a home, certain aspects of a business are meaningful to the owner but don’t add value for potential buyers.

These are things like: 

  • How many years you spent building the business 
  • How hard you’ve worked to make it profitable 
  • How loyal your team is to the company
  • How long your employees have worked for you

These are all important aspects of your business to you as the owner (and they should be). They result in pride and satisfaction for you, but they may hold little value for potential buyers. 

So what do the right buyers value when looking at businesses? 

1. Future Earnings

The first thing a buyer will look for in a business is the potential for future earnings. A business’s primary purpose is to generate profit, and new buyers will want to know how difficult maintaining and increasing profit will be. 

One way to prove future earnings is through repeatable trends. This means keeping a track record of past earnings as well as documenting the groundwork for future earnings — and both are necessary. 

For example, at the beginning of the COVID pandemic, I heard from owners who were considering selling their businesses. Their 2019 revenues were at an all-time high, but I had to point out that they had no future earnings. Sure, they had a great history, but the history didn’t matter because their market had disappeared. 

They had essentially lost all groundwork for future earnings. On one hand, they could have sold the business. On the other hand, they couldn’t have sold to the right buyer for the right price. 

Another aspect of proving future earnings is demonstrating you have the infrastructure to support it. If past earnings depended completely on a team of people who are no longer with the company, then you’ve lost the infrastructure needed to guarantee future earnings. But if that team followed a repeatable process, the process becomes the infrastructure needed, making the promise of future earnings more reliable. 

2. Transferability

While buyers will primarily look at future earnings, they’ll also consider how easy the shift of ownership would be. This is where business relationships come into play. 

Buyers will want to know how much the existing customer base relies on personal relationships with the owner. If the relationship with the owner is the main reason most customers do business with the company, the transfer of ownership can impact future earnings. 

Buyers will also consider the existing relationships between owner and employees. Are your employees satisfied with the company for reasons other than their relationship with you? Future buyers will want to make sure they’re able to retain key employees even with the ownership transfer.  

3. Operability

Finally, buyers will want to know if the business can be operated without unreasonable proprietary knowledge. In other words, can the business processes be taught and replicated?

Even with a solid projection of future earnings and highly transferable business relationships, if the business can only be run by the owner, it is less attractive to potential buyers. 

This involves more than just the operations side of the business. Future buyers will want to make sure the business has established processes for sales, operations, and finances before they purchase.  

Start Making Your Business More Attractive Now

Exit strategy is something every owner should focus on, no matter where they are in their career. 

Taking a hard look at your future earnings enables you to make strategic decisions to hit your goals. Making your business less dependable on unique personal relationships and dialing in your processes for maximum operability give your business a better chance of surviving if you have to step away for any reason — not just retirement.

Making your business more sellable for the future also makes your business more successful in the present. So treat your business like you’re going to sell it, even if that’s not your plan. It will pay off, regardless of the exit strategy you choose.

About Tom Stimson
Tom Stimson MBA, CTS is an authority on business and strategy for small- to medium-sized companies. He is an expert on project-based selling and a thought leader for innovative business processes.
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