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Empire Business Solutions Guide for Traits of a Sellable Business
Empire Business Solutions, a leading independent business brokers in Los Angeles and Orange County, California.
Traits of a Sellable Business
Stable and predictable earnings: Think of revenue and earnings as the first introduction to a buyer. By far, revenue and earnings are the number one attraction. Over the last few years, are there patterns of growth or decline? If in decline, are there good reasons for the decline? The value of a business is directly related to risk and the lower the risk of losing the earnings in a transfer of ownership, the higher the price will be. Buyers are willing to proceed with a transaction when their perception is the earnings are predictable and will not only continue, but also increase in the future. A highly critical factor!
Records: Are your books and records up to date? Are your internal records updated after preparing the tax return? Do you file your taxes on time? Do you use modern software to keep track of sales, expenses and inventory? Answer no to any of these and it will be difficult to sell. In the purchase of a business, a buyer and lender will perform a high level of financial due diligence.
Management Depth: A strong management team reduces risk thus increases value. Can the company operate without the owner for more than a week or two? Is there good management to fill in while you're gone? What is the average age of management? Are key managers bound by a non-compete agreement? What levels of experience and education do they possess? Having a good management team is critical to the transferrable value. If a company's success is reliant on capable, well-trained employees – and not the owner – it means the business will not be negatively impacted under new ownership.
Customer Diversity: A broad customer base in which no single customer accounts for more than 5% (up to 10% in some industries) of total revenue helps to insulate a company from financial hardship if a good customer does not stay after a sale. This is easier said than done for some businesses.
Barrier to Entry: Buyers want your earnings, not your assets. Anyone can buy furniture, fixtures, equipment, vehicles, and inventory and if that's all it takes to compete with you, someone probably will. The harder it is to get started in your business, the more likely it will sell. A low barrier to entry usually equals a lower price and more difficulty in selling. However, there are steps you can take to help your cause no matter what the industry.
Growth Potential: When a Seller can describe realistic growth opportunities, a deal is much more likely. Future growth is the most basic covenant for acquisition and without it; there is no reason to buy.
Facility and Equipment: Are your facilities and equipment well maintained and modern? Old technology or a disorganized facility or office creates the impression that other aspects of the business, such as financial statements, customer records, and employee files may be similarly disorganized and unreliable. Ensure your facility and equipment are organized and in good repair before showing the business as buyers look for opportunities that do not require immediate repair or expansion.
Loyal Employees: Outside of ownership and management, is there staff that is reliable and capable? Are they considered knowledgeable for your industry? Again, what levels of experience and education do they possess? What is the average length of employment? Do you have low or minimum wage employees? If so, buyers view that as the root cause of employee turnover. A responsible business buyer will be looking for opportunities where the current staff, especially management, will remain in place.
Operating Systems and Procedures: Buyers want to cost effective business systems in place. Old technology and paper offices are expensive to maintain and the margin for error is high. Today's business apps are inexpensive and effective, especially when compared to manual systems.
Goodwill: Name recognition, customer awareness, location, history, ongoing operations, reputation, and many other factors are all part of goodwill and are already reflected in your earnings. They also greatly influence value.
If your business has these traits, Empire Business Solutions would like to discuss how we can assist in the process of selling your business.
Contact Roy Moss, President of Empire Business Solutions at 714-374-6430 to discuss the process in selling or buying a business in Orange County. Empire has been in business since 2005 and is considered a leading California business broker (https://empireoc.com/