Graham’s Guide Chapter 2: 

Is Your Business Actually Sellable?

The best businesses don’t always sell. And some surprisingly average businesses sell remarkably well.

Buyers don’t buy businesses. They buy future opportunity with acceptable risk. When an owner asks, ‘Do you think my business would sell?’, the answer is rarely based solely on last year’s profit. Buyers assess sustainability, risk, growth, finance, transferability and opportunity. Many of these factors can be improved before the business goes to market.

What Buyers Really Buy

Most buyers are purchasing one or more of the following:

·       Reliable cashflow

·       Return on investment

·       Lifestyle

·       Strategic opportunity

·       Platform for future growth

·       Job with an income

·       Market share

·       Intellectual property

·       Loyal customer base

Graham’s Tip

Never assume buyers think like you. You’ve spent years building the business. They’re looking at what comes next. The more you understand their perspective, the stronger your negotiating position becomes.

The Five Things Every Buyer Is Assessing

Profit

Buyers ask whether profits will continue after the current owner leaves.

Risk

Customer concentration, owner dependence and poor systems increase perceived risk.

Growth

Growth opportunities create buyer excitement and stronger competition.

Ease of Transfer

A business that transfers smoothly is more valuable.

Lifestyle

Many buyers purchase a way of life as much as an investment.

The Owner Trap

Many owners eventually become the salesperson, operations manager, technician and relationship manager all at once. When the owner is the business, buyer risk increases.

Graham’s Tip

One of the highest-value improvements you can make before selling is to become less important to your own business. Making yourself more replaceable often makes your business
considerably more valuable. I refer to this as “Make yourself obsolete”

Businesses That Sell Easily

·       Consistent profitability

·       Clean financial records

·       Stable staff

·       Documented systems

·       Diversified customers

·       Modern equipment

·       Well-maintained premises

·       Realistic owners

·       Strong reputation

·       Obvious opportunities for future growth

Businesses That Are More Difficult to Sell

·       Heavy dependence on the owner

·       Declining profits

·       Poor accounting records

·       Customer concentration

·       Outstanding legal issues

·       Poor lease security

·       Ageing equipment

·       High staff turnover

·       Industry decline

·       Unrealistic price expectations

The Emotional Value Gap

Owners remember the sacrifice. Buyers pay for future earnings. Bridging this gap is one of the key roles of an experienced business broker.