From the perspective of somebody who sells businesses every day, three little words are responsible for more businesses NOT selling than anything else: “It’s got potential”.
Though buyers look for potential, they hardly ever pay for it. ‘Potential’ is a great thing, but it’s neither what buyers base their decisions on, nor something for which they’ll risk paying a premium.
In the past buyers have been a little more bullish in their decision-making however in the current climate, business buyers have become more risk-sensitive than they already were and as a result, risk-aversion has become their primary concern.
Potential becomes a problem when business owners use it to ask a premium for their business while not addressing what buyers actually want. Buyers see risk as the primary issue in a business sale. If the issue of risk hasn’t been addressed adequately, reliance on potential to value the business and to market it can actually kill the sale. So what are buyers looking for? One word: certainty.
Business buyers want certainty, and to give them that you need to show them two things. That you can adequately predict your future profit and that under foreseeable future scenarios, the business’s future profits are not under threat.
You can take steps to fulfil those needs by working on your financial documentation and planning ahead. Here’s how to give your buyers certainty in two steps:
1. Show that you can adequately predict your future profit.
The best way to show buyers where the business is going is to show where it came from. The only real way to do that is to prepare solid financial and historical documents. To give buyers enough information to offset their perceived risk you’ll need to put together all of the documents that you would like to see if you were buying a business. This includes financial statements, client history and contracts.
Speak with your Accountant to ensure your financials are in order before taking your business to the market. This preparation may take some time and money, but truthfully, there’s a good chance you’re actually boosting your business’ attractiveness and market price for the effort.
2. Show your profits are not under threat
This one’s a little trickier but well worthwhile. You need to demonstrate to your potential buyers that once you leave, the business can continue on into the foreseeable future. The following is a good top five list of what is a very long list of possible things to do:
- Document your role and day-to-day tasks in the business and if possible delegate some of those jobs to staff members. The less you have to do in the business the better.
- Design a handover period to personally introduce the buyer to your clients, service providers, staff and suppliers.
- Be clear on your lease and terms and provide documentation where your premises are central to operations.
- If you have any ongoing marketing or growth plans, update them and use them to indicate, at the very least, plans for future stability.
- Take steps to reduce reliance on any one staff member, client or supplier where possible.
As you might see from this list, each point offsets a particular and possible concern a buyer might have about the future of your business. In those tips, lies the real art to selling your business in today’s market. It uses the same logic advertisers in every industry have been using for decades: figure out what the market wants or needs and do your best to give it to them.
Today’s business buyers don’t buy ‘potential’ anymore, they buy certainty. So, with that in mind, do everything you can to give them as much certainty about your business as possible, and you’ll already be leagues ahead of the other businesses on the market.
Zoran Sarabaca is the principal of Xcllusive Business Sales
Disclaimer: Chan & Naylor take no responsibility for the accuracy of any research material of contributors to our newsletter. Contributions to our newsletter are meant to be educational only and Chan & Naylor does not endorse any promotional material promoted in their articles. Readers should do their own research to determine the accuracy of their material.