Thanks to guest blogger Ken Wither, founder and CEO of Scotia Business Brokers, who provided this insightful column; we believe it is highly relevant to our readers, since it is relates closely to strategy, marketing and overall business growth. Enjoy!
It’s a sobering statistic, but only 1 out of 6 businesses listed for sale ever sell. What happens to the rest of them? They go bankrupt, sell off various separate assets or quietly close, never fully realizing the years of goodwill earned through the blood, sweat and tears of risky entrepreneurship. Many are just priced too high. And without the pensions or savings that are easier to set aside with a typical job, this can leave entrepreneurs struggling on their retirement.
There’s another problem. We’re in a buyer’s market right now when it comes to selling businesses. The last recession of 2008 caused many businesses to suffer, and with the money being tight, it was challenging to get a decent price on their businesses – so those that may have sold delayed taking action. That means now that things have finally improved in 2014, lots and lots of companies are jumping on the bandwagon and trying to sell, so buyers can be really choosy and bargain hard.
So when entrepreneurs come to see me, I have to tell a fair number of them that they are not currently sellable, or not likely to get a price that meets their expectations. If only they had prepared their business better sooner, the story could have been different. Or, perhaps if they can wait and change things for a year or so, they may be able to create a more positive selling situation. So here are some key factors you need to consider carefully if you hope to sell your business one day:
- Record all Sales. You may be saving taxes (illegally) by taking a little cash on the side, but not recording all sales can make your profitability look weak.
- Don’t Hire Family and Friends. Do you have a lot of people taking money out of the business but doing little to nothing for it? Or do you have people working hard in the business but not being paid fairly? Either way, this makes your business look riskier and less legitimate.
- Don’t Make Phoney Expenses. Do you take unnecessary business trips that are really just vacations? Take your spouse along and expense that too? Again, this creates red flags that will steer buyers clear.
- Purge Old Inventory. That old junk that is sitting around that hasn’t sold should NOT be carrying value on your books. Get rid of it – fire-sale or donation, and straighten up your books.
- Have a Good Physical Presentation. Are your sign bulbs burnt out? Paint Peeling? Old dusty carpets and crooked artwork? Oddly, business owners don’t realize that this isn’t just bad for business, it’s bad for selling the business too.
- Build Internal Successors. Are you the only one who knows how to do everything? No documented procedures? Have one key employee that the whole company relies on? These are the crucial questions as to whether another owner could really take the company over.
- Have a Good, Long Lease. Having a good long-term lease, steady and in place for five or more years, can be a real asset to selling the business. It means one less headache for the new owners. However, keep in mind that the landlord may make the new owners jump through hoops before they agree to a transfer. One young buyer we worked with had to get her parents to personally guarantee the lease when she bought a business.
- Ensure Sales are Increasing. If your sales are sliding in a downward direction, this will really scare off buyers. Do what it takes to turn your sales upwards – new products, new services, new customers – and make it happen.
- Have a Measurable Business Plan in Place. If new owners can step in and know they have a regularly reviewed business plans that works, then this instills a lot of confidence that they can be successful.
- Offer to Stay and Train. If you want to sell, you can often make new owners more comfortable by offering to stay and train them for a period of time. So try and plan to sell BEFORE you’re at your last thread of personal energy; they will likely need you for a while yet.
Conclusion: Be Accountable to Make Your Company Sellable
Looking at the above points, you may think it seems pretty obvious. So why do so many businesses fail to abide by these points? I believe it is the error of “not having a boss” that can make entrepreneurs unaccountable. I used to work for the Jim Pattison Group; we used to have quarterly senior management meetings where we got grilled on every aspect of the business that we were running. Why were sales down this month? Why did we lose that client? How many calls did we make? Why did we spend money on X – and what did it get us? So consider this: If you want to sell your business – BE ACCOUNTABLE – to a business coach, to your team, to an advisory board, and to your own best standard! Yes, it’s harder in the short term, but it’s the key to getting to the golden beach at the end of the journey.
If you want an honest evaluation on your business, please don’t hestitate to give me a call.