Seven factors that will affect the sale of your business

April 05, 2010 by Stuart Gross

When you are selling your business you should know that the average business takes 6 to 9 months to sell. There are several factors that affect the salability of your business.

• Revenue and profitability A major factor affecting the salability and price of a business is its revenue and profitability (P&L). There is little you can do to change those facts but the presentation and explanation of unusual activity is important to instill confidence in a buyer. The P&L usually has the most direct effect on sales price.

• Potential and Scalability Most buyers want to buy a business that they can grow and make better. It is good to know what could be done to grow the business in new ways. For example you may not have an effective website or the business could be open more hours, or it is reasonably easy to expand to larger facilities or additional locations. Be prepared to provide some growth strategy for the potential buyer.

• Financing It is unlikely that the best buyer at the best price will be able to pay cash for your business.  There are some other possibilities. If your broker is on top of it he will try to arrange SBA or other financing in advance. These approvals are, of course, subject to the credit worthiness of the buyer and the lenders opinion as to whether he can actually run the business. You should be prepared to be flexible about carrying back some of the sales price.

• Transferability I often talk about the issue of transferability. The lack or difficulty of transferability limits the number of potential buyers which has a negative effect on price. The more prepared a seller is to support transferability the more potential buyers you will have. You can support it by having organized operational information, a trained team to carry out operations, a willingness to train and support the new owner and most of all, you need to know what the ideal buyer is for your business and what skills or traits they need to have to successfully take over.

• Owner's duties and hours If your business requires you to work 50 hours a week and you are responsible for everything that goes on it will be more difficult to find a buyer who will want to step into your shoes. If an owner works 10 hours a week there is time for a new owner to work on other business, expand this business or just play golf. Lower requirements on the owners time often makes your business very salable and enhances the price.

• Work Environment - Every buyer walks into a business he is considering and says  to himself “do I want to come to work here every day, do I see myself in this environment? You should clean that messy kitchen; paint that marked up wall in the meeting room or in the office. A good clean up will affect saleability and price.

• Price it right - There is always a range of price that a qualified and smart buyer will pay for your business. A good broker can help you establish that range.  Be prepared to wait longer for an offer at the higher end of the range. If you have the time, go for it. You can always negotiate with a serious buyer. If you want to sell more quickly you should be in the middle to lower end of that range. Typically there is a positive correlation between price and the amount of time it takes to sell. For a given business, the higher the price (within the realistic price range) the more time it is likely to take to sell.

These are general observations. Every business is different and timing, economic conditions and location are always variables.

Uncategorized, Business Sales Process, How to Sell