What does it mean when someone says, “I sold my business?”
- 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 believing “my results buy my business”, and we set some clear expectations of what you need to do to build a sell-able business. So, what does it mean when you see a business “sell” even though they don’t seem to have any results?
The truth is that you can’t look at a business sale from the outside and know what went on with the transaction.
- Perhaps the owner had better results than you think.
- Maybe the buyer made a horribly overpriced purchase and the seller just got lucky.
- What if the owner offered the business assets at a very low price?
- Maybe the owner 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 owner. 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 and goes a long way towards reinforcing the idea that there is some secret formula out there that gives your business great, hidden value. That is a very dangerous, but very common, belief for small business owners to have.
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 business “stuff” (equipment, contracts, name, etc.) And the sale of business “stuff” almost always results in a dramatically lower price – often pennies on the dollar. Think of what kind of deal you expect when you see the “going out of business” sign.
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 of the simple approach and how important it is to you being able to sell your business someday.