Do You Have a Sellable Business?

By Scott Balfour

You have run your business for years and it has served you well.  At some point, you will want an exit event.  It may be an outright sale to an individual or even private equity, a synergy sale to an expanding business, an ESOP to employees, or a transition to family member(s).

So the question is when you’re ready, will your business be ready? If not, the question is then begged, “What can I do to get it ready and improve my likelihood of a sale and optimized price?”

To determine this, the first step you might take is to ‘benchmark’ where you are and where you want to be.  Areas to look at might include:

  • Financial Performance – As a general rule the larger the revenues the higher the multiples.  The more stable and predictable the revenue adds to the sellability.  The historical, current, and projected revenues with a good trend add to sellability.
  • Potential For Growth – Buyers are looking for opportunities beyond “what is”.  Opportunities could be geographic, vertical, horizontal, or cultural scalability.  These should be identified and a path for that should be considered.
  • Delegation and Systems – If an owner is the key rainmaker and wearing all the hats, the company relies on strong instructional knowledge without systems and controls then steps should be taken to change that.  Business plans and marketing plans should be developed.  Policy and Procedures created, accounting and controls tightened up, key performance indicator matrixes created, and job descriptions with cross-training implemented.
  • Customer Satisfaction – Is the company relying on always finding new customers or are there a lot of repeat customer purchases and referrals?  Is this haphazard or are there approaches to encourage it and make sure no one is slipping through the cracks?
  • Recurring Revenues – The question needs to be asked are there ways to build recurring revenues vs. “starting over every month”.  Service contracts or consumable products may be considered.
  • Valuation – Consider doing a regular valuation of the business.  The publicly traded businesses know their equity value every second the trading markets are open.  The small business, at best, might know their book value but have no idea of market value.
  • Concentration – Is your company is overly relying on one or a few key customers, vendors, employees?
  • Books and Records – As a general rule the better the accounting, legal work, contracts vs. open billing, policies, and procedures are, the more sellable the business is.

There are other factors of course.

I encourage you, or an impartial third party to take a look at this.  An outside consultant might give it a look with fresh eyes and provide you invaluable insights. The goal is to build equity value, so when you are ready to exit, your business is ready also.

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