You already know that your company’s revenue and profits play a big role in how much your business is worth.
One of the most intimidating aspects of selling your business can be facing the barrage of questions during the various management presentations you’ll be doing for potential acquirers. Be prepared to be grilled on all facets of your operations. Of course every meeting will be different, but here are some questions you can expect to be asked when you’re in the hot seat.
Most professional acquirers will have a checklist of questions they need answered if they’re considering buying your company. They'll want answers to questions like:
• When does your lease expire and what are the terms?
• Do you have consistent, signed, up-to-date contracts with your customers and employees?
• Are your ideas, products and processes protected by patent or trademark?
• What kind of technology do you use, and are your software licenses up to date?
• What are the loan covenants on your credit agreements?
• How are your receivables? Do you have any late payers or deadbeat customers?
• Does your business require a license to operate, and if so, is your paperwork in order?
• Do you have any litigation pending?
In addition to these objective questions, they'll also try to get a subjective sense of your business. In particular, they will try to determine just how integral you are personally to the succ ...
What are your business goals for the year? If you’re like most owners, you have a profit goal you want to hit. You may also have a top line revenue number that’s important to you. While those goals are important, there is another objective that may have an even bigger payoff: building a sellable business.
But what if you don’t want to sell? You most likely will want to at some point in the future. Here are five reasons why building a sellable business should be your most important goal, regardless of when you plan to push the eject button:
1. Sellability means freedom
One of the fundamental tenants of sellability is how well your company would perform if you were unable to work for a while. As long as your business is dependent on you personally, there’s not much to sell. Making your company less dependent on you by building a management team and creating just-add-water systems for employees to follow means you have the ability to spend time ...
Predicting Good Outcomes Too
When a doctor takes your blood pressure, they not only rule out possible nasty ailments; they can also use the pressure reading to forecast a healthy life ahead. Similarly, your Value Builder Score can predict good things for the future. For example, based on more than 10,000 business owners who have completed their Value Builder Score questionnaire, we know the average multiple of pre-tax profit they are offered for their business when it is time to sell is 2.0. By contrast, those companies that have achieved a Value Builder Score of 80+ are getting offers of 5.0 times pre-tax profit.
In other words, if you have an average-performing business turning out $500,000 in pre-tax profit, it is likely worth around $1,000,000 ($500,000 x 2.0). If the same company improved its Value Builder Score to 80+ while maintaining its profitability of $500,000, it would be worth closer to $2,500,000 ($500,000 x 5.0).
Are you guaranteed to f ...
Will this be the year you seriously drive up the value of your company?
If you have resolved to make your company more valuable in 2018, you may want to think hard about how your customers pay.
If you have a transaction business model where customers pay once for what they buy, expect your company’s value to be a single-digit multiple of your Seller's Discretionary Earnings (SDE).
If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, you can expect a higher multiple. Buyers pay up for companies with recurring revenue because they can clearly see how your company will make money long after you hit the exit.
Not sure how to create recurring revenue? Here are five models to consider:
Most entrepreneurs think of profit as an objective measure, calculated by an accountant, but when it comes to the sale of your business, profit is far from objective. Your profit will go through a set of “adjustments” designed to estimate how profitable your business will be under a new owner.
This process of adjusting—and how you defend these adjustments to a buyer—is where you can dramatically spike your company’s value.
Let’s take a simple example to illustrate:
Imagine you run a company with $3 million in revenue and you pay yourself a salary of $200,000 a year. Further, let’s assume you could get a competent manager to run your business for $100,000 per year. You could safely make the case to a buyer that under their ownership, your business would generate an extra $100,000 in profit. If they are paying you three times profit for your business, that one adjustment has the potential to earn you an extra $300,000.
You should be a ...