top of page

"Is My Business Sellable?"

Writer's picture: Jason HuettJason Huett

So, you've decided to sell your business to pursue other interests in life — it can't be that hard, right? More than 90% of business owners we work with come to us having already made this decision.


And, we're often the bearer of bad news that the business either can't be sold as it stands, or more frequently, the sale price is likely to be much lower than the owner had envisioned.


In this article we will share a cross section of data with you illustrating the most common reasons we've seen for lower-than-expected valuations as well as the contributing factors that have made some business difficult (or impossible) to sell.


If this sounds daunting, there is good news: given a bit of strategic planning, most businesses can be sold and we're here to talk about that as well.


What Are the Most Common Reasons Business Don't Sell (or Sell for Less than Ideal Value?)


There are a wide variety of reasons that businesses don't sell:


  • High Owner dependency: In other words, the Owner IS the business. This isn't uncommon - most Owners are involved in day-to-day operations and fill many roles, but if the Owner has purposely left key roles vacant to save on Payroll Expenses, Buyers will often reduce their offering price. Key Buyer Question:

Buyer Question # 1

  • Disorganized financials: While some Owners have the ability to maintain their own accounting records, it's generally a caution flag for Buyers. The exception would be an owner who has a formal background in Accounting. Of the clients we worked with in 2024, less than 15% had financials believed to be in "Excellent" condition in our opinion.

Key Buyer Question:


Buyer Question # 2

  • Downward Revenue trends: Much like the stock market, it's beneficial to "buy low and sell high." A downward Revenue trend may be explainable to a Buyer, but generally will lead to a reduced selling price because Buyers place more weight on recent year's financials.

    Key Buyer Question:


    Buyer Question # 3

  • Low Profit/Low Cash Flow: At the end of the day, Buyers need to make a return on their investment. For this reason, they look for Profit and Cash Flow as the leading indicators when buying a business. A business with low levels of either of these likely cannot be financed even if a Buyer accepted the Asking Price. Key Buyer Question:

    Buyer Question # 4

  • Technology Disruption: As our world becomes more technologically advanced, there are industries that will become obsolete. For example, in the 1980s, door-to-door sales of Encyclopedias was a booming business. In its prime, Encyclopedia Britannica reached a peak revenue of over $650 million in the early 1990s. Today, the company has revenue of about $100 million, mainly through digital channels. Technology can be a major disruptor that can move extremely fast. Key Buyer Question:


Buyer Question # 5

"My business is worth less than I thought. What can I do?"

Over the years, I've bought and sold many of my own businesses and know this feeling well. I wish I could say that the value placed on my businesses exceeded my expectations, but a high majority of the time the opposite was true.


There is good news: with a bit of strategic planning and hard work, there are several steps you can take to improve the valuation of your business.


Operations:

  • Develop SOPs (Standard Operating Procedures): Buyers love to see these — they are an extension of the Owner and many times include basic, but pertinent processes direct from the Owner's mind.

  • Develop an Employee Handbook (AKA: HR Manual): This shows that you've taken your employee retention into consideration.

  • Re-assess your team: Are there gaps in skill or job functions within your organization? If so, address those gaps by making strategic hires. Alternatively, if you are overstaffed, perhaps you can lean up your P&L a bit by tightening up your Labor budget.


Marketing:

  • Develop core metrics around Marketing performance: This gives Buyers insight as to (1) how you acquire customers, (2) the cost-to-acquire those customers, (3) and the likelihood of future repeatability.

  • Update your website: This is perhaps the lowest hanging fruit because all Buyers will certainly review your website to ensure consistency between the Offering Memorandum (marketing document for the sale of your business) and actual Operations.

  • Use Promotions to ramp up Revenue: Marketing promotions such as Email Marketing, Social Media promotion, and Sale events can be effective tools for quickly leveling-up Revenue.


Accounting:

  • Accounting gets it's own space here even though it's considered a part of Operations. Make sure you have up-to-date Profit and Loss and Balance Sheet Statements.

  • Ensure that your P&Ls matches your company Tax Returns — this is one of the most critical areas that should always tie-out.

  • Be able to explain Revenue trends — both good and bad.


In closing, know that you have control over many of the factors contributing to the valuation of your business. If you're wondering what your business might be worth, don't hesitate to reach out — we're happy to help you maximize the selling price of your business.


To your success,


Jason Huett Business Broker | CEO | CMO Collaborative Commercial Business Brokers, LLC.


8 views0 comments

Recent Posts

See All

コメント


bottom of page