Top Value Drivers Buyers Care Most About When Selling Your Business
Selling your business is a challenging task, even for the most experienced people. No matter how you present your business when going to market, it will be scrutinized by all buyers. It’s important to consider the top value drivers buyers care most about when reviewing businesses to acquire. Knowing these will allow you to adjust or improve them before going to market. This is half of the value drivers we’ve compiled over the last decade. If you’d like to learn more about the other half, please reach out to us.
Earnings: Many business owners either sell when they just had their best year, or, when they’ve tapered off from growth and recently had a down year. Buyers want to see simple steady growth instead of jumps or volatility. Buyers will average the last few years of cash flow, typically based on the tax returns, with some owner benefit adjustments or addbacks. They will be very skeptical of pricing a business based on a great most recent year. However, they will be more concerned if the business had steady growth for years and suddenly had a bad year.
Industry Strength: Buyers tend to shift their focus on the type of business they want to acquire, based on industry trends. At the time of writing this, manufacturing, wholesale, distribution, tech, health, home services (trades), and E-comm are in high demand. Our last five businesses we’ve brought to market in these categories have received multiple offers. These categories change based on the economy, interest rates, SBA, politics, war, and just about everything else. Automotive shops, for example, are tough to sell and are dying off with the switch to EV. This happened years ago with print shops too.
Company History: An important element buyers consider when acquiring a business is the company history. How long has the business been around? Are you the original founder? Does the business have great reviews online? Has there ever been litigation or lawsuits against the business? These are all things that will come up at some point within a transaction. It’s always best to be upfront and get them out of the way early. Buyers are OK with most history, as long as they know ahead of the purchase.
Management: Does your business have a GM or manager in place to run the business while you’re in Hawaii for a month? Is this person earning a fair wage? Do employees respect them? Would you consider your business semi-owner-absentee? Anything along these lines adds value to your business and makes it more marketable. Putting someone like this in place a couple of years before a sale can dramatically improve the odds of selling at a premium. Buyers want to come in and be strategic thinkers and grow the business… vs working in the business day to day.
Operating Systems: From day one, buyers want to step into the business after and have a manual to follow. Is it easy to repeat steps or processes? Is training new employees relatively simple? Do you have a fool-proof CRM or customer management system? How do you make sure steps are followed and customers are happy? This is one of the quickest ways to increase the salability of your business. Get these systems and processes in place ahead of the sale. Document them and reference them frequently. Create a culture of “We have a repeatable process for that.”
Prepping your business for sale is no easy task. If you’re more than a couple years out from selling, you can make these adjustments and sell from a position of power. As a reminder, this is half the value driver list. Please reach out to us for the other half.