Business Drivers that Decrease Value

The other day Jessica was saying how she’s come to realize we and others say about the same things when it comes to what makes a business more salable and a buyer more attractive to a business seller or intermediary. She’s right and here’s an example of a trifecta of issues one owner had.

Regular readers of this Weekly Memo know I stress the following.

  • Buy-sell is a relationship game.
  • There are four main things every owner should do in order to exit with style, grace, and more money.
  • I have three questions I ask owners when they’re thinking of selling.

Don’t think the above is just theory, it’s not as the following illustrates.

  • I asked the potential seller if he’d worked with a financial advisor to see what he needed for his next great adventure in life. His answer was no and “just about all my wealth is in the company.” This is not uncommon and he’s looking to diversify his assets by selling all or part of the business.
  • My four areas of action for sellers are to have good financial systems, show you can grow (don’t just say if a buyer hired a salesperson the business would take off), attract and retain great people, and reduce dependencies, especially any owner dependency. This owner had been approached by a large firm and, “they beat me up on price because the business was too dependent on me.” To his credit, he’s been working on not being involved in the day-to-day.
  • Then a couple years ago a buyer made an acceptable offer that he turned down. He told me, “I didn’t want my employees working for him.” He went on to say the buyer was a young guy from a rich family, had a degree, but no good experience. The buyer flunked a big test when the seller asked him some questions about possible problems (which all businesses face) and there were no good answers.

This stuff is not from a textbook. These issues are prevalent in too many small businesses when the owner is too tied to the day-to-day operations plus thinks their business is so special buyers will line up with huge checks when it’s time to sell. They only will if the owner pays attention to those things buyers want in a business.

“I don’t need time. I need a deadline.” Duke Ellington

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