Ride the Time Machine for Selling Your Business

Smart buyers travel through time when they buy a business. They want to understand how the business has performed in the past three years or more and will use that information to project how it is likely to perform in the future.

Back in Time or forward in time, buyers will consider these key business indicators:  

Customers:

• Customer concentration: How much risk does the business face if it loses its largest customers? Buyers generally become concerned when 15% or more of revenue comes from a single customer.
• Customer acquisition cost: How much does the business spend to win a single new customer?
• Customer retention rate: What percentage of existing customers continue doing business with the company over a given period? Retention is a strong indicator of customer satisfaction and helps predict future revenue.

Financial:

• Are the financial records clean and organized?
• Has revenue grown year over year? Buyers want to see growth driven by more customers or larger average sales, not just price increases.
• Have gross profit margins remained steady?
• How do key financial indicators compare with industry benchmarks?
• Have costs changed significantly, including suppliers, labor, and operating costs?
• How does cash flow through the business? Where does it come from, where does it go, and are their seasonal highs and lows in revenue?

Legal:

• Has the business been involved in any lawsuits?
• Are there any pending litigations or claims?
• What contracts or legal obligations are in place?
• Is the business subject to environmental regulations?
• Any subscription or fee agreements with vendors or customers?
• What permits and professional and business licenses are required?

Operations:

• Owner or key-person dependency: Can the business run without the owner or is it overly reliant on a key employee?
• Operating Procedures: Are documented processes in place that allow the business to deliver consistent results as it grows?
• Technology: Does the business use technology effectively to operate efficiently? How current is the software and hardware?

Step Into the Time Machine

If you are preparing to sell your business, step into the time machine and assess your company from a buyer’s perspective. Use your past performance to judge whether the business will have strong momentum going forward, not just a solid track record from the past. What will a buyer see when they look at your past, and what will it tell them about how your business is likely to perform in the future?

The best time to prepare is well before you go to market, however even if you’re ready to sell in the near future it’s essential to understand what a buyer will experience as they consider purchasing your business.

Our Seller Insights online trainings guides Sellers through preparing their business for buyer scrutiny and provides key insights on successfully navigating the process of selling their business.

Each step you take now strengthens the story your business tells a buyer and can lead to a smoother sale at a stronger price.