How to Sell Your Business for Top Dollar
After a lifetime spent building a business, a business owner understandably wants to sell for what he or she has earned, and nothing less. But the fact of the matter is that some businesses are more valuable than others — even businesses that make the same amount of money. So what kind of business is going to fetch top-dollar from a prospective buyer? Here’s a practical guide to how to organize your business to be most valuable to a buyer like Permanent Equity.
Financial Profile
When it comes to money, consistency of verifiable earnings trumps just about anything else. That means steady growth not only from year to year but from month to month and growth caused not only by selling to more customers but also by selling more to existing customers. If your business does this, it should reap increasing efficiency. This means it has to reinvest less each year in order to maintain its pace of growth and metrics like revenue per employee and return on assets are getting bigger as well.
Check it:
My sales are 50% bigger today than they were 5 years ago.
No customer represents more than 10% of my revenue.
My business can show that it sells more to my top 10 customers each year.
People Power
If you or your most valuable employee were to get hit by a bus, what would happen to the business? If your answer is anything from “Uh-oh” to “I don’t know,” then you have a people problem. The best businesses are composed of a series of interchangeable parts with there being redundancy across people, knowledge and responsibilities – and are run by teams of people at different stages in their careers so there will always be long-term operational continuity.
Check it:
There is at least one other person in the business qualified to replace the CEO.
The gap between the highest paid and next highest paid employee in the business is less than 25%.
At least one member of the leadership team plans to be with the business for more than 5 years.
Do Something Different
When you talk about your business, how do you describe what you do? What makes you different? Is it something someone else can easily replicate or something – like a brand, patented technology, reputation, or network of relationships – that would take years of time and investment to build? The former is not worth much, while the latter is the source of sustainable competitive advantage. Make sure you know what makes you different and are prepared to talk about it.
Check it:
I can describe why customers pick me over competitors, and the answer is not price.
If I asked my customers, they would give the same answer.
Clean Cap Table and Operations
Straightforward deals are more likely to get done at higher prices than deals that will take a lot of heavy lifting. If there is no majority shareholder, for example, a lot of people will have to agree on the terms of the sale in order for the sale to proceed. If you’ve ignored your responsibilities when it comes to compliance on things like healthcare law and insurance, those issues will have to be remediated before a buyer will assume the risk. Before you try to sell your business, make sure your house is in order.
Check it:
An independent accounting firm reviews or audits my financials annually
There is a majority shareholder and fewer than three people hold equity in the business.
A third party has reviewed and signed off on my insurance coverages
I’m not skirting any laws in order to make incrementally more money
If you’re interested in figuring out what your business is worth, we offer our Instant Appraisal tool which measures these and other factors to estimate a fair value range for your business and provides some actionable next steps on what you can do to make that number go up.
Click here to start your appraisal.
