What exactly are you selling when selling a business?
Over the past 5 years, we’ve come across many small business owners, franchise owners and entrepreneurs who are all looking to buy, sell or grow their ventures. While talking to most sellers, there is an overwhelming amount who do not know what exactly they are selling and what most buyers prioritize when looking to acquire an existing small business or franchise. It is definitely a great time for buying or selling a business or franchise, however, when selling your business or franchise, you need a full understanding of what exactly you are selling. So we broke it down into 3 areas:
Financial Future Potential & Opportunities
A buyer wants to see 3 to 5 years of financial history that discloses month-over-month growth in revenue, profitability and EBITDA. The latter are critical to a buyer since most of the valuation is derived from a multiplier of revenue or normalized profits or EBITDA. A ton of small business owners try to “conveniently” show that they are in the loss or that expenses exceed revenue as a tax strategy, however, if your goal is to exit and create a sellable business, this is not the approach you want to take. So, you need to focus and understand that buyers are not buying the business for today they are buying the business for future financial potential and opportunities in your space – so showcase it!
Assets
When selling a business, most buyers do consider your hard assets, for example equipment. A ton of value comes from this as well because it is something tangible and sellable. For example, you purchased a fridge for your restaurant for $100,000 and now the value is $70,000, very simple and very sellable. Some businesses that are not financially healthy actually consider doing an asset-based sale, meaning that they cannot showcase financial future potential and opportunities, however, they have $500,000 in tangible assets and can sell it to someone in need of those assets which in turn can create profitability moving forward as a going concern.
Goodwill
This is something intangible. Something that a particular buyer admires. Things like:
So as a business owner, franchise owner or entrepreneur, if your goal is to sell one day, you need to understand what you are truly selling and ensure you have a path to create a sellable and valuable business. It starts today!
- Business culture with strong employee base
- Growth/Expansion strategy
- Brand awareness
- Social following
- Client base
- Targeted demographics
- Intellectual property
- Research & Development
From The Desk of BizON
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