What does it mean when someone says, “I sold my business?” Is it a real business sale or just a fluffed up story?
If they "sold the business" it must mean something successful happened. They found their jackpot, right? Not necessarily.
- What if you know the business was unsuccessful?
- What if you know the owner never made any money?
At Exit Oasis we talk about the importance of understanding “my results buy my business”, To sell your business you need results that will allow your buyer to meet their two key needs. So, what does it mean when you see a business “sell” even though they don’t seem to have any results?
You Can’t Look at a Business Sale from the Outside and Know What Went on with the Transaction
- Perhaps the seller had better results than you think.
- Maybe the buyer made a horrible purchase and the seller just got lucky.
- What if the seller offered the business assets at a very low price?
- Maybe the seller calls it a “business sale”, when really they just found a quiet way to go out of business.
This isn’t a question of judging the seller. If they want to tell their story as one where they “sold their business” that’s up to them. We’re calling out the difference between “selling your stuff” and “selling your business” because watching a business transaction from the outside can be very misleading.
It can be very confusing to other small business owners to see a failed business "sell". It goes a long way towards reinforcing the idea that there is some secret formula out there that gives your small business great, hidden value. That is a very dangerous, but very common belief of small business owners.
Most businesses have items of value: equipment, real estate, inventory, etc., and many of these items have intrinsic value (a company vehicle has a certain value whether the company makes money or not). But beyond the intrinsic value of the things that a business owns, there’s an opportunity to create real value. Real value is created when the things a business owns combine to produce financial results for the business. Suddenly your $30,000 of “stuff” produces $300,000 in Seller’s Discretionary Earnings – that’s real value – and selling that real value is what we mean when we say someone “sold a business”.
When someone “sells their business” in a transaction that doesn’t account for the results of the business, in reality they sold their stuff (equipment, contracts, name, etc.) And the sale of business “stuff” almost always results in a dramatically lower price – often pennies on the dollar. Don't believe that? Think of what kind of deal you expect when you see a “going out of business” sign. Do you go in ready to pay full price?
Regardless of the circumstances or how it’s presented, what’s important is that you don’t let someone’s “I sold my business” story cloud your understanding that "my results buy my business".