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Thinking Ahead - Prepare to Sell
November 19, 2010
Written By: Jim Wahrenbrock

Often when we’re contacted by a business owner who has decided to sell the first question is”What’s my business worth?”  

We often leave that first meeting wishing that they would have called two or three years earlier.  Why?   Because if the owner had better prepared the business for sale in advance; the value would have been vastly improved.

Here are a few basic questions that should be addressed well in advance of a sale so that adjustments can be made to make the business more attractive to potential buyers:

  1. Is our business dependent on relationships and does one individual in our business personally own all the key relationships that really matter? Buyers will be wary of businesses that hinge on one person; if that individual is gone so is plenty of the business.
     
  2. Is our business too dependent on one or two key customers? Single customer concentration greater than 30% is a red flag for buyers and lenders because the loss of a customer of that scale may make the difference between profit and disaster.
     
  3. Will our customers be the survivors in this increasingly competitive business environment and be solid buyers in the future, or are they tier two competitors that will only be around a few more years? Potential buyers will be more likely to pay up if you have long term viable customers.

Perhaps the best overall question to ask two to three years ahead of time is “What would a potential buyer look for if they were interested in my business?” And what is that? Simply put, a smart buyer wants to know that what makes the business work will stay in place after the sale. If the good parts stay intact they can confidently decide how to grow and make the business better.

The simple concept of Prepare to Sell can make a very big difference in the sale price of a business but it takes thought, planning and change. Owners often get so involved in their business that they lose the objectivity that a potential buyer would have in evaluating the business. We have seen many sad stories where owners just didn’t have their business ready to sell and consequently received far less than they ever anticipated. It doesn’t have to be that way. Significant value adding adjustments can be made to many businesses but that requires an honest evaluation of the business. Often getting an outside in look by an experienced advisor can make that process more objective, easier and more effective. 


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