It is no secret that most small business owners go into business to make money. It is also no secret that most new businesses fail within the first year and of those that do succeed, even fewer have any sales value to prospective buyers. People looking to purchase a small business are making an investment, and investors generally want to see positive returns. Buyers will look at many details when considering purchasing a small business but several key features can provide just the edge you need when building a small business YOU CAN SELL:
Entrepreneurship is at an all-time high. It seems nearly everyone wants in on the action, creating a seemingly ultra-competitive marketplace both online and off. To make statements or in attempts to enter new markets, many new business owners want to launch large, flashy companies with all the trimmings – but these businesses tend to be unsustainable in the long run. Remember this: size is not synonymous with success! Businesses built on strong foundations, focused on later growth, tend to support long-term viability much better and are generally better candidates for later sale.
Manage Your Time
Oftentimes small business owners become their own strongest employee, if not their only employee. While this grants increased control over business affairs, it comes at the cost of business sustainability once the owner decides to step away. Buyers don’t want to buy someone else’s job, nor do they wish to purchase a business that will cease to be profitable once it’s time to sell. Buyers want to purchase small businesses that are profitable and self-sufficient – even without you at the helm. Build a business, not a job.
Small business owners generally assume many or all the professional roles for their businesses. New small business owners are often distracted by learning the ropes (hiring, payroll, bookkeeping, and a mountain of other details), detracting from time focusing on products and business profitability. Many new small businesses fail simply because the business owner is unable to focus on every detail at once and still find time to turn a profit. While high-risk ventures may carry high-value rewards, entering safer and more-established markets at first reduces several exterior stressors, increasing the amount of time available for generating revenue. This can give your business the time it needs to grow, become sustainable, and ultimately: become sellable.
Follow the Money
Buyers will want to see your books, in all their glory. If all you have is a shoebox filled with receipts and a pocketful of cash, you might be in trouble. Accurate bookkeeping is a key detail when trying to sell a small business. Business income, expenses, assets and indeed all financial records must be accurate and updated. Well-kept and accurate accounts will demonstrate the potential profitability for the business, establish credibility for yourself, and will help build confidence in potential buyers.
Generate Recurring Revenue
Small businesses generating recurring revenue have a significant advantage over small business operating on a feast-or-famine lifestyle, especially when it’s time to sell. When selling a small business, the investment needs to be attractive – there must be some ongoing value to the business. Recurring monthly- or annual-revenue streams assist buyers in budgeting their potential income and monthly expenses, present an altogether more-attractive business sales package, and work to justify the asking price of a business.
Recurring revenue streams lay the groundwork for profitability but revenue must exceed expenses for the business to be profitable as well. Buyers don’t want to purchase a burden, they want to purchase business. Financial discipline, intelligent planning, and accurate recordkeeping are essential tools for operating a small business, and proving small-business value to potential buyers. Knowing this information ahead may help you in determining the asking price for the business as well. Small businesses demonstrating consistent profitability over a measurable time span have increased legitimacy, and offer potentially more value for business buyers.
Is your business the service or product you offer, or is it more than that? Branding helps your business name conjure up an image, symbol, or other trigger for customers. Small businesses with successful branding can increase their sales value for prospective buyers. Branding takes time to implement and may be accomplished in diverse ways, but successful branding has been shown to increase customer awareness and loyalty, and increase market share. Small businesses with successful brand recognition are likely to increase their market presence and customer base, attracting buyers and driving up the sales price for the business.
There are no guarantees in life that you will be able to sell your small business, but there’s a lot you can do to increase your chances. Selling a small business requires more than putting a ‘for sale’ sign up, it requires creating an accurate and attractive sales package proving the value and profitability of your small business. It is never too early or too late to take control of your small business finances. At Overland and Shanahan, we offer a full range of financial planning services for small business owners. We help our clients realize their financial goals and dreams with prudent, effectual, and objective financial advice to best fit their needs and goals. We know you have a business to run and we want you to be successful in it – we believe in clear, easy-to-understand financial guidance personalized for you.
We’d love to hear from you! Give us a call today and learn more about small business financial planning, and how you can build a business you can sell.