What Makes A Business Sellable?

For a large portion of buyers, a business should be profitable. It should have systems in place and provide an opportunity for the incoming owner. Having historical sales and documentation available is critical. To put it simply, buyers are what determine the saleability of a business. As long as there is a reason for a buyer to purchase your business, it will be sellable.

Is Your Business Transferrable, or Are You The Business?

While there are always going to be exceptions to the rules, generally speaking, if your business is something that cannot be separated from you personally, then you must consider if it is sellable at all. 

If you possess a set of skills that are not transferable, you are the business. For, e.g. you are a talented painter who makes a living out of selling your own paintings from your garage, this would be a challenging business to sell. 

However, if you own the art gallery that sells the paintings and has a database of buyers looking to purchase such artworks, then you are separated from the business. You have an asset to sell!

Profitable

Make sure you can substantiate your profits. There is no point claiming your business makes profits if it cannot be proven. Gone are the days where buyers are lining up to buy businesses without seeing tax returns or other official financial documents. 

In most cases, they are trying to obtain finance and are merely asking for the information that the lenders are requesting.

Some buyers may take into account the wage an owner is paid and consider it part of the profit; others look at profits to be the amount on and above the reasonable cost of replacing the owners’ hours. Get your financials in order before going to the market; it is crucial to do this properly and have this ready for when it is required.

Barriers to Entry

What do barriers to entry represent?

It is, in essence, a type of security for a new owner. It can come in many forms such as Intellectual Property & trademarks to the physical location

Possibly owning specific machinery that gives your business an edge over its competitors. When there are such barriers, it provides a business with more tolerances, security, opportunity and demand for their product or services. This will make the business more desirable.

When looking to achieve the highest sale price for your business, you want to make sure these items are highlighted and not overlooked. The harder it is for your competitors to take business from you, the stronger your position is when negotiating.

The same can be said the other way around, if there are no real barriers, the goodwill proportionment of your business may not see its full potential value.

If your location is a leased premise (and it is critical to the businesses success), then before going to the market, you should make sure you have a decent tenure for the incoming owners. I would suggest a minimum of at least five years.

Even if the agent or landlord has verbally told you they would extend it or provide a new lease, get it in writing. I have witnessed this on many occasions. 

Once the business has been placed on the market and a buyer has been found, the circumstances may have changed. The owners or owners agents may have changed. As a result, the offer for an extension or new lease is no longer available. If this occurs, you can be sure it will reduce the value of the business.

Instil Confidence

With so many businesses on the market, you want to make your one stands out from the rest.

One of the most common complaints you hear from buyers is the lack of readily available and concise information on businesses.

Yes, it can be a time-consuming process, and sometimes you just don’t have your books in order. If you are happy to sell the business under those circumstances, then you should expect the price of the business to reflect that. If a buyer feels they are taking a risk, then they most likely will try to mitigate the risk.

The best way? Pay less for the business and reduce your exposure.

However, if you want to maximise your chance of selling and achieving a better result, then you need to have the information ready and ensure it is easy to follow.

Try to have the following ready:

• Clear documentation on the past and present financials; 
• Customer and supplier lists & agreements; 
• Processes such as training and operation manuals; 
• Employment contracts; 
• Equipment agreements;
• Copy of current lease;
• Staff rosters, roles, experience, salaries and any other information around the staff 

If there is anything else that you believe would be important for buyers to know, make sure it is readily available. Instilling confidence in a buyer is critical. The best way to do this is to provide them with the information requested.

Try and do this promptly, delays or unusually long amounts of time taken to collate the information places doubt about the validity of the documentation.

Be prepared to answer any questions without creating conflict or making them feel as though you have something to hide.

Buyers tend to be suspicious, and as there are so many businesses for sale, they don’t usually hang around long when documents take too long to be provided, or when they seem questionable.

Assets

Make a list of all the assets being sold with the business. 

You should have a list of all the items that are under any finance or lease and that may be transferred or paid out upon settlement. With most finance companies, it is relatively simple to get a payout quote on the items. 

Speak to your accountant and ask them their advice regarding the breakdown of the assets & goodwill proportionment.

There can be tax implications if you get this wrong, so it’s always good practice to seek advice from the right people.

Written by Edward Pampalian - Network Infinity

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