Maximizing for Tomorrow
Last week I sent you to the Blog of Rose Stabler of Certified Business Brokers in Houston to study her list of factors that drive the value of a business. Today I want to talk about marketability. Value is certainly something a business owner should be concerned about when they are thinking about their retirement and selling their business. But marketability is more important!
Here is a harsh reality. You can have a business that makes good money and is a high performer but is totally unable to be sold. On the continuum of factors that drive value, negative manifestations of these value drivers can act like an on/off switch to the potential of being sold. Here is how some of those value drivers manifest negatively.
- The owner’s contribution is overly significant – buyers will feel there is no way the owner can be replaced and avoid the deal.
- Lack of operating systems and procedures (Stabler’s driver # 6) – Having these drives value. Not having them increase the risk of a buyer replicating your results. If it’s all in people’s heads, its not likely a buyer is going to take the risk.
- Poor quality financial information (Stabler’s driver #2)– If your financial information is hard to understand, not accurate, doesn’t hold up to scrutiny under due diligence, you chances of getting a deal done is small.
- Over concentration of customer base (Stabler’s driver #3) – If a buyer thinks the loss of a single client can dramatically affect the viability of an acquisition, they are really going to think hard about whether it is worth the risk.
Here is what you need to know and take to heart. Business values don’t go in a steady curve from value higher to the value being lower and lower. They go from “you have a premium value, to “you have to have the minimum standard to sold” to “you can’t even be sold at all!” And there are more businesses in the “can’t be sold at all” category than the premium and minimum standard category combined.
If it is your plan to sell your business, don’t take this chance. Evaluate your business against the value drivers and understand what you might have to change to make your business marketable or to improve your value.
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