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Looking to Sell Your Business? Then Don't Obsess About its Turnover

Posted On - 04/11/2016 07:44:40

Aiming to create a business worth buying doesn't mean you intend to sell. What buyers look for also pleases lenders, suppliers, credit rating agencies and customers too. So ‘preparing' for sale makes sense even if selling's not your plan nowAiming to create a business worth buying doesn't necessarily mean you're selling. What buyers look for also pleases lenders, suppliers, credit rating agencies and customers. So ‘preparing' for sale makes sense even if selling's not your plan now.

Earlier blogs tackled how data on customers, sales and profitability improves what your business is worth. This week we look at how business growth adds even more to that.

What is, what was, what may be

Building value in a business isn't the result of just one thing – it's several – and business growth is another one buyers consider. In fact, it's really pretty important as we'll see.

Past growth proves a track record. The line of turnover and profits to date suggests a trajectory going forward. Sure, past performance doesn't predict the future, but it hints at what's possible without much input from the buyer.

But while reassuring, it misses the real issue in buyers minds. You see what matters isn't what your business could make if you owned it, it's what it could if they did. And that's unlikely to be the same.

What prompts purchase?

BCMS's Luke Rebbettes was crystal clear about this during his session at our Open Day. The top reason buyers buy is growth potential.

Acquiring another business is rarely about buying turnover. Economies of scale seldom make a compelling case. What intrigues buyers are the possibilities purchasing presents. What gets them hot is what they could do with your business once they apply their money, their resources, their nous and their vision to what was yours. How they could use your products and services, your location and your customers to their advantage? How could your business not just add to theirs, but multiply it?

Your business isn't just some product on a shelf. It's not a widget with a price tag. It's a launch pad, a new direction, ideas come true, a new set of options and opportunities not possible before. That's what buyers - the right ones - will be after. And those possibilities may well be not what you think. They could be things you'd never dreamt of. Things completely different. Even things you think ridiculous.

Not your average bear

It's worth getting under the skin of growth potential more. Because once you get why some buyers will pay a premium even when a business is loss-making or on-the-brink of bankruptcy, you've got why ‘potential' has worth. Once you clock they're not buying to pick up stuff cheap, they're buying because they see possibilities others can't, you're in the right place.

Now we're not suggesting you ‘crash' your business to prompt a sale. Clearly that's daft. We're just pointing out how value works. And it's not necessarily the result of turnover.

Never run your business like you're selling

You can't predict the future. You can't read minds. You don't know what your business could be worth to any one buyer. All you can do is make it as ‘sale-ready' as you can. That way you're covering all the angles. Your making your business as attractive as you can to the majority.

But wait... Is this actually good advice? Does it make sense to run things with one eye ogling for buyers? It's an interesting question. Selling your baby is hard.

Whether you care for your business like it's family or it's just a means-to-an-end always being on the look-out comes at a price. Why invest in the new software you need to do repairs better, the equipment that would help you do new work, the staff that would give you the extra capacity you need? Why spend all that money when the buyer could do it?  Thing is, if you run your business like this you'll just end up under investing. And in the hope of making it worth more you'll end up making it worth less.

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