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Is Your Company An Asset?
Is Your Company An Asset?
This week I’m proud to present a guest column written by someone I admire and respect: my brother, Brand Launcher’s CFO, Ken Goldman. This extremely important article deals with getting your business into shape for a sale. Now, you might be thinking, “That’s not relevant for me; I’m not ready to sell my business.” Big mistake. As you’ll soon see, Ken’s advice is critical long before you’re actually looking to exit your business.
Would You be Ready if a Buyer Came Knocking?
Imagine that someone were to call you and say, “We’re interested in acquiring your company.” How would your business look to an outsider? As an entrepreneur, have you thought about your exit strategy? Have you structured your business to maximize its value?
If you are hoping to sell your business – imminently or even one day, way down the road – then read on.
Your Most Valuable Asset
For many business owners, the equity in the business is their most valuable asset — but it’s also their least liquid asset. Every business owner should begin to think about exit strategy long before it’s time to leave the business.
One exit strategy is to keep your company, reduce your day-to-day role, and simply draw an appropriate level of passive income. Another strategy is to transfer ownership to family members or key employees. But if you truly wish to “cash out,” selling the company to outside investors will offer the best return.
The Hard Facts
There are over 5,000,000 small-to-midsize businesses in the U.S. and, according to a national organization of business brokers, roughly 20% of these businesses are for sale. Of those, only 20% will actually sell.
Consider what that means. Of the 1,000,000 businesses for sale, only 200,000 will sell, merge, or have a major change of ownership. That means most of those business owners are going to end up disappointed.
Why will most of these businesses fail to sell? The main reason is that the seller overpriced the business from the perspective of willing buyers.
One of the hardest lessons in life is learning to see yourself as others see you. When you first recorded your voice and heard the playback, what was your reaction? Was it, “Is that how I sound?! That doesn’t sound like me!”
Now imagine that a potential buyer is going through a due diligence process to decide what your company is worth. Can you envision how your company would look to the buyer? What’s the “Sellability” of your company?
Not Like Selling a House
Selling a house is easy compared to selling a business. With a house, you know exactly what you’re selling – 3 bedrooms, an updated kitchen, great public schools. If you are selling a home, there are probably similar homes in your neighbor that have sold recently and they give you a good idea of the market value of your home.
It’s a whole different ballgame when you try to sell your business. When a business sells, the sale price is not public information. There are services that attempt to chart the sale prices of business, but there are so many variables (such as earn out options) that it’s difficult to find “comparable” sales to give you a clue as to the value of your business.
In a previous article, my brother Jon discussed how a business owner can build Freedom Teams and Freedom Systems. Employing this strategy enables you to build a business that can operate without your being involved with the day-to-day tasks. A business that operates successfully without the owner’s daily intervention is much more appealing to a prospective buyer. The buyer wants to buy a business – not you or your job.
There are other key attributes of how a business operates that will appeal to potential buyers. It’s worth the effort to make sure you measure up on these attributes. Making small changes could lead to significant financial payoff down the road.
Is Your Company Sellable?
Going through a professional business valuation is probably the surest way of finding out what your business is worth. But a good valuation is not simple and not cheap.
A first, simple step you can take is discovering your Sellability Score. Brand Launcher is now making available a free Sellability tool that provides business owners valuable information including:
Whether your business is easy or hard to sell
How to improve the Sellability of your business
The questions you need to be asking before your sell your business
To find out this useful information, you’ll need 13 minutes to answer the online questions in the tool. We’ll then provide you with an overall Sellability Score out of 100. In addition, we’ll give you specific scores on eight key drivers of Sellability which have been proven to increase the value of your company. Studies have shown that a Sellability Score of 80 or more indicates that your company is worth 70% more than the average business in your field. Click here or on the image below to find out your Sellability Score.
The 27-page report that comes with your score provides specific actions that you can do in the eight key areas to improve your Sellability. All of this is available to you free and without any obligation. Your results will be handled with the strictest level of confidentiality.
Exit strategy is a complex topic, but it’s worth investing some time now to reap the rewards later. Whether you are looking to exit your business now or many years down the road, spending 13 minutes to find out your Sellability Score is a good start. Plan now — and when you’re ready to sell, you’ll be ready to get top dollar for your business.