Selling Your Business: Know What Buyers Are Looking For

Aug. 27, 2009 - PRLog -- Selling your business does not have to be complicated but it is a process that is unique and one that most business owners don't have much experience with.

What Buyers Want in a Business

Business buyers are a fickle bunch. Most of them (some say as many as 90%) will never actually buy a business. The role of the business broker is to distinguish the serious buyers from those that are "window shopping". This is a critical role that a business brokerage plays. The focus of this article is to examine some key elements that most "serious" buyers look for in a business for sale.

Historic cash flow

There is an expression that says "cash is king". This is a very true statement if you are considering selling a business. Buyers are very interested in firms that have a strong track record of historic earnings and cash flow. If you are an owner thinking of an exit plan for your company, take a look at the past two to three years of your financials. Determine what the cash flow is. If you need help, talk to your accountant or business broker for assistance. It is very difficult to sell a venture that is losing money or one that is only marginally profitable. Too often, brokers hear that an owner wants to "sell my business - but it has potential". Potential is great, but there must also be cash flow.

Is the cash flow sustainable?

A buyer is not only interested in how much historic profit a business generates, but is more so interested if the earnings are sustainable. A buyer will be interested in a firm that has an excellent earnings history only if he or she believes that they can buy the organization and not have the profits evaporate once the sale closes.

Is the business priced right?

If a business has strong historic earnings, sustainable returns and is easy to transition - but is not priced properly - then the business will be difficult to sell. Getting the valuation (or listing price) correct for a business sale is critical. Example - if you own a small shop that generates $75,000 in earnings every year to an owner/operator and you expect to ask a $1,000,000 price, this will be extremely difficult, if not impossible, to sell. Consider that most small firms are currently valued at 2-3x 'seller's discretionary cash' when you think about a selling price. If you need help, talk to a broker or a business evaluator to assist you. If you are serious about selling your company please be realistic about the asking price.

Potential

Don't approach an intermediary with "I'm thinking of selling. My shop earns me about $50,000 every year but it has potential, so I'd like to ask half-a-million dollars for it". Potential needs to be a given during a sale. Buyers expect potential. If there is none, then it will be very difficult to sell your business. If that is all you are offering though, you need to re-examine your sales strategy very closely. Buyers will naturally ask if there is so much potential in the business why you haven’t done anything with it yet. This is a very important point.

Find more information about selling a business, Amerivest Group business brokerage can provide you with more information on the process. Visit us on the web at http://www.AmazingSouthFloridaBusinessesForSale.com.

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Have an extensive background in many different types of businesses as the founder, owner, general manager, marketing manager and sales manager. For more information, visit http://www.AmazingSouthFloridaBusinessesForSale.com .