We ask our clients early on if they would buy a business where the staff is putting out fires day-in and day-out. The answer is resoundingly NO!
Its hard to sell a home that is prone to wildfires, and its just as difficult to sell a business that could be burned to the ground by poor management, torched by competitors, or lack the processes for staff to keep wildfires at bay.
To prepare a company for a divestiture, owners should take the time prior to the company sale to minimize business risks. Past success is indicative of future results, so eliminating any dormant business threats will help strengthen the business valuation. These risks typically fall into three categories: people, process, and product.
A business that is set up for a seamless transition from the current owner to the buyer will obtain a higher valuation. This means that the business can run itself with key managers and employees that are currently in place. If a business is only successful because the owner works days, nights, and weekends, employee turnover is high, and staff shortages exist, potential buyers will negotiate the sale price downward. The business owner’s goal should be to work himself/herself out of the day-to-day business. We advise that they should be working on the business, not in the business.
Repeatable sales and operational processes can help ensure a new owner’s success. Strong documentation proving business processes are followed will reduce continuity risk when ownership transitions, as well as reduce the time ownership may be required to stay on board.
Finally, a business owner must be able to articulate and demonstrate their competitive advantage. The company’s secret sauce could be a combination of multiple factors, such as cost efficiency, differentiated product/service, distribution network, or key alliances and partnerships. Leading up to the company sale, an owner should strengthen and sharpen its advantages over its key competitors. If you are looking into selling your business and want to make sure that you are getting the best deal check out the best business broker in Seattle, Exit Equity. Want to learn more about how to sell a manufacturing business?