A business owner should always make sure her 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. “That means you’ve done everything to maximize its value.”
Bidelman uses tools based on author John Warrillow’s book “Built to Sell” and the “Sellability Score” online survey tool to advise small-business owners on the health and solubility of their business.
Here are eight factors, based on Warrillow’s “Built to Sell,” that Bidelman advises business owners to consider:
1. Financial performance: The value of a business and its sellability are directly related to the size of the business’ expected future earnings and the risk that those potential earnings will materialize. “Someone could buy your business for strategic purposes, but most acquisitions are for financial purposes,” Bidelman said.
2. Growth potential: “If the future stream of revenue is going up every year, it significantly increases the business’ value,” he said.
3. “Switzerland structure”: Switzerland is known for being dependent on itself, 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. “If you build a business because you have one client who represents 80 percent of your revenues, it’s much riskier for a buyer,” Bidelman said.
4. 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. For example, a business that must pay upfront for a large stock of inventory for later sale may have this issue.
5. Recurring revenue: Potential buyers will consider whether a business has guaranteed revenue built into its structure. Without it, buyers will be less interested.
6. The monopoly control: Stronger candidates for sale will have less competition and will better differentiate themselves in their markets.
7. Customer satisfaction: Buyers will want to know if a business has satisfied customers and if there’s proof of that satisfaction. Bidelman recommends that businesses regularly survey customers and clients.
8. Hub and spoke: If a business is built around its owner, it will be difficult to sell.
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