A growing number of business owners have one goal in mind: selling their companies. These individuals are motivated by market opportunities, shifting priorities, a wish to retire, burnout, or a combination of these factors. Regardless of your “why,” it’s vital to realize that there’s a difference between planning to sell and preparing to sell.
Many business owners assume that they’ll attract buyers because they’ve built strong revenue and succeeded for years. Then the first serious buyer asks tough questions about the entity’s financials, management structure, or recurring revenue, and the deal deflates before their eyes.
Here’s how you can close the gap between wanting to sell and actually being ready when buyers start knocking.
Why So Many Owners Want to Sell
Business ownership has become more challenging and turbulent than ever. Entrepreneurs must contend with rising operating costs, labor shortages, inflation, and economic uncertainty. At the same time, most baby boomers have reached retirement age. Other business owners simply want more flexibility and less stress.
Before you start exploring the value of your business, it’s important to identify your motivations. You can use your whys to set a timeline and prepare your business for the sale.
Buyers Raise the Bar
Today’s buyers excel at due diligence. Even if a prospective buyer loves the initial numbers your company produces, they’re going to take a deep dive into every detail, including your management structure and how customers are concentrated in your service area.
If there are a lot more questions than confidence-inspiring answers, buyers will be more likely to pass on your business. In light of that fact, you need to have a story that shows potential buyers where your business came from, where it’s been, and where it’s heading next.
Most Businesses Have Hidden Value Gaps
Many owners don’t realize where their business falls short until they begin talking to prospective buyers. Here are some issues you might encounter if you try to sell your business unprepared:
- Too much owner involvement in daily operations
- Customer concentration with one or two major clients
- Limited recurring revenue
- Outdated financial reporting
- Poor documentation of systems and processes
- No leadership succession plan
None of those challenges makes a business unsellable. However, each one can make buyers less confident when it’s time to move forward.
Exit Planning Starts With Understanding Your Current Position
Contrary to popular belief, you can benefit from exit planning even if you aren’t in a rush to sell your business. Think of it as a business-improvement strategy rather than a commitment to sell tomorrow.
By identifying weaknesses now, you’ll have time to make your company stronger and more resilient. If and when you eventually decide to sell, you’ll be better positioned to attract buyers and get the deal done.
Measure Readiness With a Value Builder Score
One of the biggest mistakes owners make is to guess what buyers want. An objective assessment can help you see where your business stands in terms of sellability. The Value Builder Score is a comprehensive look at key drivers that influence market value. It measures the factors that buyers consider when they perform their due diligence.
Build a Business Buyers Want
The strongest exits don’t happen by chance. If you want to command a premium valuation, you need to focus on:
- Strong financial reporting
- Predictable revenue
- Documented systems
- Experienced leadership
- A diverse customer base
- Clear growth opportunities
Transform your company into a business that exudes these qualities and watch interested parties come flocking.
Don’t Wait Until Buyers Find the Problems
Planning to sell someday isn’t enough. Even if you don’t know when you might want to sell your business, proactively addressing potential issues will give you more negotiating power when dealing with buyers.
If your business entered the market today, would it inspire confidence or raise concerns?
Find Out What Your Business Is Worth
Get a clearer sense of where you stand and what you can do to unlock additional value from your business. Contact Zabel & Munson today and let us calculate your Value Builder Score.