A business owner should always make sure their business is ready to sell – even if there are no plans to put it on the market.
“If you own a business, the way you should build it, run it and manage it (should be) as if you intend to sell it,” said Wayne Bidelman, a business coach with Advicoach, a small-business training and mentoring firm. “That means you’ve done everything to maximize its value.”
Bidelman often uses tools based on author John Warrillow’s book “Built to Sell” and “The Sellability Score,” an online survey tool used to advise small-business owners on the health and solubility of their business.
Bidelman advises owners to make their businesses healthy before selling.
“Quite often business people who think they want to sell their business are doing it at the wrong time for the wrong reasons,” he said. “The solution is to fix it first and build its value and then sell it.”
Here are factors, based on Warrillow’s “Built to Sell,” that Bidelman advises business owners to consider:
Financial performance: The value of a business and its “sellability” are directly related to the size of the business’s expected future earnings and the risk that those potential earnings will materialize.
Growth potential: “If the future stream of revenue is going up every year, it significantly increases the business’s value,” he said.
“Switzerland Structure”: Switzerland is known for being self-dependent, and businesses should take a similar approach. If a business is overly dependent on one customer, one employee or one vendor, it’s less attractive to a buyer.
Valuation teeter totter: Operations that require a large investment of cash with a lag in earning it back can depress the value of the business.
Recurring revenue: Potential buyers will consider whether a business has guaranteed revenue built into its structure. If not, they will be less interested.
The monopoly control: Businesses that are strong selling candidates will have less competition and will better differentiate themselves in their markets.
Customer satisfaction: Buyers want to know if a business has satisfied customers. Companies should regularly survey customers and clients on whether or not they would recommend the business to others.