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Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Industry

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 2 of our series we will focus on ‘Industry.’ To read the full series, click here.

We all know industries experience ups and downs. Factors that might affect whether an industry is hot or cold include; market dynamics, government regulations, new technology, and whether or not an industry is desirable. Ultimately, whether an industry does better or worse from time to time depends on supply and demand.

For example, frozen yogurt was in high demand 5 years ago. Everyone wanted a new store because there was limited supply and the market was demanding new stores. Now there is a frozen yogurt store on every corner – over supply and under demand – which will affect the value of the company and whether the buyer wants to enter the market.

For a buyer, a business in a stable, consistent industry is desirable. Traditional industries such as construction and manufacturing tend to be more consistent and have fewer threats than say the frozen yogurt industry. Ultimately, buyers want to enter markets that have growth potential versus markets decreasing in value or with strong threats that will decrease the value of the industry in the future.

Selling a business is a complicated manner. If you have additional questions, please contact one of our Colorado business brokers at 720.259.5099 or email us. You can also read more about our seller services at this link.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Reputation

Part 3: Reputation

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 3 of our series we will focus on ‘Reputation.’ To read the full series, click here.

A business’s reputation is not only vital to the success of a business, but it also plays a crucial part in the business’s value when it comes time to sell. Despite this, many businesses tend to ignore the importance of reputation and focus more on revenue and growth. In truth, a business’s reputation is a major factor that a buyer evaluates when deciding to purchase a business.

What gives a business an appealing reputation? First, a strong market presence– having a strong market presence will give the buyer confidence that the business being sold is established. A company that has 3+ years of history is evidence to a buyer that the company is stable and has a strong revenue potential. Additionally, a business that is a leader in its industry or niche will command a higher listing price, since it is already very influential in the market.

It is important to recognize that a business’s reputation can fall to the owner of the business. If the owner is the “face” of the business and the business’s reputation is a direct result of the owner, this may cause issues for a buyer. It will make it harder for a buyer to transition the business if the previous owner was a focal point in the reputation for the business.

Lastly, positive online reviews are essential to a good business reputation. Bad reviews or public relations can lead to a decreased listing price and/or repel potential buyers.

All in all, having a strong business reputation is a major factor for buyers. A great reputation will result in increased activity on a listing and a higher listing price.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: culture. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Organizational Structure

Part 2: Organizational Structure

The way a business is structured is a major factor for buyers. In general, business structure is the framework on which the business is run. This can include but isn’t limited to the organizational structure of a business– directors, managers, and the various roles of staff.

A key aspect of business structure as it relates to the sale of a business is how involved the owner is with the customer facing activities such as sales, customer service, or customer retention. For example, if the owner of the company is client facing and directly impacting the majority of the sales of the business, a buyer may believe it will be difficult to continue those sales once the owner is no longer with the company. It is imperative, therefore, that the sales of a company do not rely on an owner solely. This is a huge ‘red flag’ for potential buyers.

Sellers can remedy this situation by transitioning the owner out of client-facing roles. They can begin to implement and/or hire account managers that will take over this role making the business more attractive to potential buyers.

In summary, it is essential to ensure that a business structure doesn’t rely on an owner. Buyers want to ensure that a business will still be able to maintain its revenue once the owner has transitioned out of the company.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: reputation. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Cash Flow

Part 1: Cash Flow

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 1 of our series we will focus on ‘Cash Flow.’ To read the full series click here.

When business owners are preparing to sell their business, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In this issue, we will focus on cash flow.

Cash flow is defined by the total ownership package of the business. Professionals may refer to this term as Owner’s Cash Flow or Sellers Discretionary Earnings (SDE)– these terms are often used interchangeably when discussing the sale of a business. Generally speaking, cash flow is comprised of net profit, ideally as claimed in the seller’s tax returns, plus adjusted expenses (salaries, depreciation, etc). A seller identifying their cash flow correctly is key to attracting potential buyers.

Another reason cash flow is so important, is that it helps buyer identify what the return on investment will be for their purchase. The average sale price for a small business (those with cash flow less than $500,000) is between 1x and 3x the cash flow amount. This range can vary depending on factors such as the number of employees, the length of incorporation, industry and the current marketplace. If a seller positions the asking price above this average, there will be little activity on the listing. On the contrary, if a seller positions the asking price on the lower end of the average, he or she can generate lots of activity from interested buyers. All in all, it is essential that the asking price is in correct proportion to the cash flow.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: Organizational Structure. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.