The Best Thing to Do When Selling Your Business is to Show Stable Consistent Revenue, Growth and Capital Expenditures.
The business was great. It had survived the recession and had steady revenue, growing profitability with plenty of opportunity for expansion and growth. But we were having a difficult time getting an offer. Why?
To sum it up, the business was a moving target. Since we began our marketing process, the vendor had purchased over a million dollars of assets. Then he put one of his buildings up for sale. Staff changed, a new division was set up, and the vendor went from being hardly involved to spending full days hiring and training key people.
For us, the extensive changes have complicated the selling process. Can we get the job done? Absolutely. But everything takes longer because of changes to the valuation and deal structure and the constant revamping of projections and marketing materials every time the vendor makes a new decision.
Are you really ready to sell your business?
A few years ago the owner of a fabrication business asked me to come see his operation; he was looking for a brokerage to help him sell. The financials were fantastic and, as I understood it, the future was bright. As I walked around his three-acre site, I noted an interesting machine that was still packaged.
“It’s a robot,” he told me. “When it’s set up, I’ll eliminate a number of jobs and be able to compete in a peripheral market. It’s going to give me significant additional revenue.”
A warning bell went off in my mind. Then I noted a brand new structure being built. The owner told me that the structure would be fundamental to a major reorganization of the premises and work flow. All I could think of was: “Is this person really ready to sell his business?”
Buyers want to know what they are buying
Buyers don’t want to guess at what they’re buying. Each time a vendor does something new, we have to ensure that the action and its impact on the business is clearly communicated to potential buyers because, if they aren’t able to get a grasp on what they’re buying, they’ll walk. Sometimes they’ll walk anyway, if the vendor seems to be making unwise decisions.
Making major changes midstream often isn’t beneficial for the vendor either. If your business is worth $8 million and you spend $1 million on assets during the sale process, you will have a difficult time recovering that investment through the sale. You’re also going to introduce a whole new set of questions for the buyer – How long will it take to recover this investment? How does this affect the value? What will be the impact on the operation? – further complicating and drawing out the process.
Use opportunities to your advantage
In no way am I suggesting that you should quit growing or buying needed assets once you put your business up for sale. But major expansion and reorganization should be left to the new owners or done before your business goes on the market. You can even include expansion and reorganization opportunities in your marketing package, presenting them in such a way that potential buyers can get excited about them.
If you are thinking about selling your business, call The Alberta Business Exchange today, before you start making big changes. Usually, the best thing to do is to show stable consistent revenue, growth and capital expenditures. Keep major reorganization to a minimum. And take comfort that you will be paid fairly for your years of hard work and dedication.
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