Tuesday, 21 May 2013

4 Oversights That Make Your Business Less Valuable

Don’t wait until you decide to sell. Set your business up right with these critical steps

We've all heard at one point or another that in order to get the best price for your business, you should maximize sales, identify new growth opportunities, build cash flows, differentiate between your key competitors, and minimize the owners role.

Taking these steps improves management practices, and can improve the desirability and marketability of your business.

But there are other critical steps that, if overlooked, may cause your ideal buyer to discount the selling price, or worse, simply walk away.

1. Transitional training

If you've set a hard and fast end date you may alarm quality buyers.

No one knows more about your business than you. Buyers assume that the outgoing owner will assist in training and the transition of leadership with current staff, suppliers and customers.

Buyers get scared off when the training doesn't match up with the complexity of the business and the experience they bring to the table. Ask your prospective buyer up front about their expectations—and try to understand why they're worried. Share your experiences with training new incoming employees in the past, as this is often an indication of the learning curve.

If you're open-minded and realistic you'll settle on a training period both parties are comfortable with.

2. Cash deals

You need to show all your results on the books and be open, honest and accurate about all things.

Growing up I could never figure out the saying, "You can't have your cake and eat it too." It was only recently, when I met a retailer who was experiencing double-digit growth for years but not showing it on the books, that I came to understand the saying.

He was disappointed that he could only secure an offer based on his "official" books, not the dusty ones he kept in the credenza behind the desk. Not to mention the line-up of buyers who quickly passed on the deal, wondering what else wasn't recorded on the books.

Buyers don't trust results they can't verify. The documented financial performance of the past three year's cash flows will be the basis from which price and terms are determined.

If the results on the books won't get you the offer you want, you may want to think about whether now is the right time to sell.

3. Lack of a long-term lease

If location is important to your business, you should secure a long-term lease before selling.

The lease terms can be a major consideration for a buyer. A restaurant with a long-term lease on a good location can be attractive. Plus, an expiring lease could spook buyers worried about possible rent increases.

On the other hand, a long-term lease can be a detriment for a business that needs more space to grow. When it comes time to negotiate a new lease, think carefully about your plans for growth and expansion, your marketing strategy, operating costs AND potential plans for exiting the business. Preplanning in advance can go a long ways towards a successful transaction.

4. Failure to diversify

Buyers know the impact of losing a customer that represents 20% or greater of your overall sales could be devastating. Yet, a lot of companies do have a single customer or a few large customers that dominate their overall sales. Nobody wants to turn down business! But when it comes time to sell the company, this becomes a huge problem.

Find a way to diversify your customer base BEFORE you ever decide to sell their business—a few years in advance.

Start by nurturing the relationships with current customers who represent a much small percentage of your overall business. Generally a small volume increase with a handful of good smaller customers will mitigate the impact of one large customer.

From budding entrepreneurs to sophisticated strategic acquirers, the opportunity to buy an existing company can be very rewarding. It can also be very frightening. That's why it's so important not to spook quality buyers. Even when everything is set up properly, it can be months before you attract the ideal buyer with the finances and skill sets necessary to buy your business. The last thing you want is lose the sale because you overlooked something that you could easily have addressed ahead of time.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a Business Broker with VR Windsor Inc., which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca



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