Will you be able to sell your small business?
You need a simple answer, but you never get one.
You search online. You reach out to experts. You read, watch, and listen. But wherever you go you find complexity.
You find conflicting valuation formula’s, multiple ratio’s, confusing industry variations, stories about the sale of huge companies, changes in market conditions, rules, exceptions to the rules, financial restrictions and uncounted other variables. And you are told over and over:
“It’s hard to understand. You better leave it to the experts.”
Good advice. But when you reach out, the experts tell you that your business is:
- Not ready for sale – and the broker must understandably focus on businesses that can be sold.
- Broken, and needs to be fixed — but you can’t afford the consultant’s fees.
- Too small – but no affordable path is offered to help you make it bigger.
So here you are, overworked and overwhelmed – and exploring the sale of your business only makes it worse.
Will you be able to sell your small business?
Your Buyer Will Show You The Way
Will you be able to sell your business? The simple answer is yes . . .if you can find a buyer who is willing and able to buy the business. A buyer is the key. So, the first step is to stop asking “will I be able to sell my business”, and instead ask:
“Can Bill buy my business?”
Bill is your buyer. 10 months or 10 years from now, Bill is your buyer. Why Bill?
Bill is the average small business buyer. For our purposes, Bill is “every-buyer”. There are other kinds of buyers but focusing on our most likely buyer shows us the core of the simple approach.
- Bill is an individual.
- Bill plans to be a full-time owner.
- Bill is not rich, but he has the funds for a down payment on the business.
- Bill will need to finance the rest of the purchase. He will do that through a bank loan, seller financing, loans from friends, etc.
Bill wants many things from a business, but at the end of the day he has two core needs. Two considerations that guide him as he asks, “can I buy this business?”
Bill must know:
- Can I earn a living from this business?
- Can I make the payments on the money I borrow to buy this business?
Those are Bill’s major concerns – which means if you want to sell your business, you need to make them your major concerns.
- Bill will be working full time in the business. He will not have another job to cover his expenses. Common sense demands that the business provide an income for Bill.
- Bill’s banker will not give him a loan to buy the business unless he can document his ability to make the payments on the loan.
These are Bill’s critical needs – and here’s the most important part to understand: the financial results generated by your business must be high enough to fund these two items. Bill must meet these needs with the seller’s discretionary earnings generated by the business he is buying. Not from additional money he brings to the table every month.
So, put all the complexity aside. Here’s your simple answer: “my results buy my business.”
Bill will use the results that your business creates to pay for the business. Your results determine if he can afford to buy it, and at what value.
You might believe that there’s some other secret formula, but for you, the small business owner, no secret formula will overcome Bill’s two, real-world needs.
My results buy my business. This is your simple approach. This is what you need to repeat to yourself every time you think about selling your business. This is your way through the complexity that dominates this topic.
My results buy my business tells you two things:
1. Poor results will keep you from being able to sell your business.
Too many owners operate under the belief that there is a pot of gold waiting at the end of their business. But the truth is that the pot of gold is only there if you created it.
This means many small business owners will never sell their business – and the statistics on the sale of small businesses echo this conclusion. We understand how difficult that might be to read if this is your situation and you were counting on a sale.
We’re not saying that poor results mean there’s no value in your equipment, or inventory, etc. – but selling your stuff is different than selling your business, and selling your stuff usually produces pennies on the dollar.
But don’t despair, you can change your results!
2. If you improve your results, you improve your business value, and your ability to sell it.
If you want to sell your business, nothing comes close to the impact of improving your results.
“My results buy my business” gives you control. It’s not up to the experts. It’s not up to the broker, or the banker, or the buyer. It’s up to you.
“My results buy my business” doesn’t guarantee your business will sell, any more than “eat right and exercise” guarantees you good health. But it dramatically increases your chances and gives you a real focus for your energy, resources and efforts. It offers the best return on investment available.
My results buy my business – that’s your simple approach to this topic. Change your results and you change your ability to sell your business.
That’s what you need to know, but what do you need to do?
Once you understand that “my results buy my business”, there are 3 key questions to ask:
Cover photo by Toa Heftiba on Unsplash