DO YOU HAVE A SELLABLE BUSINESS?

What makes a business sellable? Simply put, a business can be sold if there is a willing buyer for the business. Which begs the question, what are buyers looking for? Often buyers do not really know what they want until they find it.

Understand where the value in your business lies. If you can’t answer this how can a buyer?

When we ask buyers what they are looking for, the most common answer is:

“A strong cash flowing business, in a growth industry, with high barriers of entry and an existing management team in place.”

Show us a business like this and we would have a line-up of buyers. The reality is that there is no such thing as a perfect business. Businesses by nature have flaws and issues, and buyers need to realize that these flaws and issues is what we call RISK. Every business has Risk associated with it, and if someone ever says that they have a no-risk business opportunity, walk away.

Buyers do not always look only at profits and growth opportunities. Sometime buyers may be interested in acquiring a certain asset of the business and are willing to buy the entire business to obtain this asset. Sometime the asset may not even be a tangible asset. For example, a person may buy a business to get access to the location, a customer list or a website address. Competitors may purchase a business only to close it down in order to capitalize on the decreased supply in the market. In some instances, businesses are bought for their liabilities and the tax benefits associated with these liabilities.

A dry-cleaning business was showing a loss year after year on their financial statements. The business had been in business for many decades and had a very loyal customer base. The business was on a month to month lease and the landlord was not willing to enter into a longer term lease with any new buyer of the business.

From a conventional perspective, the business was worthless since it was not producing consistent positive cash flow and did not have a lease in place. The business was successfully sold after it became evident that the real value of the business was not in its cash-flows or physical location (location was important, in that it needed to be in the general area), but rather in its brand and customer loyalty to that brand. The new owners, simply kept the name, and moved the business to the next block securing the customer base and with an improved business model, turned the business into a highly successful enterprise.

Purchasers ultimately make their decision on whether to purchase a specific business on the Risk-Reward profile of the business. What is not always evident is what reward a given buyer gets from acquiring a specific business.

As you assess if, when and how you will sell your business, don’t assume that just because your business is not making any money that there is not value in the business. To find the value in any business, ask yourself the following questions:

What makes your business successful?
Why do customers come to your business as opposed to your competitors?
What value do you add to your customers?
What are you best at?