The One Thing Every Sellable Business Has in Common

Mike Finger prefers not to overcomplicate things. 

When it comes to buying and selling small businesses — something he’s done many times — he knows that there is a whole knowledge industry built up around the complexities: brokers, accountants, lawyers, etc. It’s not that these people aren’t important, Finger said during his presentation at BuyAndSellABusiness.com’s #BossUp conference. But when you make your living on mastering this complexity, you don’t necessarily have an incentive to make things simpler. 

“I can’t tell you how many owners I’ve spoken to who believe that the value of their business is buried somewhere deep inside those metrics and that there’s a secret formula that does it,” he said. According to Finger, the harsh truth is that only about 20% of small businesses will ever sell successfully (cough, cough – 40% on BuyAndSellABusiness.com, just saying), but the reason most are not sellable is not because of something complex — it’s because of something basic. 

In Finger’s estimation this comes back to one simple concept that too few sellers fully embrace: Your results are what sell your business.

“If you want to sell your business for $1 million, you need to answer the question, ‘how is my business going to pay for that?’” he emphasized. This is not, as many sellers tend to think, the buyer’s question to figure out, it is yours to demonstrate as the seller.

Finger suggested three simple questions that all sellers need to ask themselves to ensure they have a sellable business.

Are my results desirable?

This is a two-pronged question. The first is obviously financial. Does the business generate sufficient cash flow not only to service the business’ debt, but also SDE (seller’s discretionary earnings) that offer a life of relative comfort. The other has to do with lifestyle. “Your buyer’s lifestyle is going to change based on the business,” Finger said. “If your job sucks” — if you work 12 hours a day with unfriendly people — “why would someone pay you for the opportunity to do it?”

Can a buyer duplicate my results?

If you have 25 years of experience running your business, odds are you’re going to be pretty good at your job. Most buyers understand that it’s going to take them time to catch up, sometimes years. But you as a seller need to ask: Do those desirable results walk out the door when I do?

You can guard against that happening, and in turn reassure the buyer, by building your team including employees, contractors, consultants, etc. to operate independent of you. You can also do this by creating systems. That could be a post-it-note on how to work a printer to a manual on your businesses processes; anything, Finger said, that ensures knowledge relevant to the business exists somewhere other than inside someone’s head.

Can I document my results?

Finger said there are shenanigans that often happen in the world of small businesses. In one case, after the broker left, one business owner invited Finger back to his condo to look at the “second set of books.” “I kid you not, what he said was, ‘I think the numbers might even be better than what I’m showing here because I think my brother might be stealing from us,” Finger remembered. In short, the seller was trying to negotiate a better price for his business based not only on the fact that he was dodging taxes, but also on the suspicion that there were more nefarious activities happening.

But the reality is that for every outright fraudulent business, there are 10 with messy books, Finger said. In either case, the impression left on prospective buyers isn’t a good one. Whatever your business results, “you gotta be able to prove it.”

Watch Finger’s full session from #BossUp 2023 here. 

Opinions expressed here by contributors are their own.

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