Most small businesses would not have succeeded without the persistent and focused attention of the owner. But, if the owner is still seen as indispensable when it comes time to sell the business, this will have a very detrimental effect on the selling price. In extreme cases, the business might even be unsaleable. The more the owner has developed key employees and systems to effectively run the business in his absence, the more attractive the business will be to a buyer and the higher the selling price.
Another important factor is the general condition of equipment & facilities, most buyers will discount their offered price if they perceive that the facilities and equipment are in immediate need of repair or replacement. On the other hand, most buyers won’t pay a huge premium when everything is nearly brand new. The best strategy for a seller is to keep everything reasonably up-to-date, but resist the temptation to either defer normal replacement investments when needed, or make major capital investments in state-of-the art equipment and facilities just before attempting to sell.
Other important factors to consider are:
— Amount of working capital required to effectively run the business,
— Amount of outstanding debt,
— Degree of customer concentration,
— Percent of repeat business, and
— Quality and consistency of earnings.
Some of these factors may be inherent in the nature of the business and there’s nothing the owner can do to fix or improve it. On the other hand, a serious seller who begins preparing for the sale of his/her business months or even years in advance can often make a huge difference.
We’ll continue this discussion in a future issue.
In the meantime, if you know of a business owner who’s thinking of selling or buying a business and who might benefit from a complimentary consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com
By: Mike Ertel, Transworld M&A Advisors