Welcome to 2021, everyone!
As we begin the new year, many of us are seeking new beginnings. For some of you, that might mean selling your business.
If you are in a position to sell your business, congratulations!
The question when selling your business is how can you make it alluring to potential purchasers. To help answer this question, I’ve enlisted the help of Laura Bechard, a chartered professional accountant who specializes in business succession and exit planning for business owners.
Laura says buying a business is often a matter of convenience. For the purchaser, buying a business is often more convenient than starting and growing their own business. She likens it to going into a bakery and buying a cookie versus baking your own cookie; you end up with a cookie either way, but it’s much more convenient to go and buy one than to bake your own.
Similarly, someone who wants to buy a business wants the benefit of having a business, but doesn’t necessarily want to go through all the hard labour of starting and growing one.
Now that we know why someone wants to buy a business versus starting one, let’s look at how you can make yours scream “buy me!”
1. Make sure it has growth potential
Anyone who is buying a business wants it to have the potential to grow further. They are looking for an entity that will provide them with consistent and reliable cash flow in the future and new ways for them to invest, Laura says that growth could come from:
- Customer acquisition
- Entering new markets
- Increasing revenues and profits
Not all buyers look at growth the same way. Some may consider growth to be reinvesting earnings into the business and adding employees or moving into a new location.
Although not a hard and fast rule, a really good rate of growth that is bound to attract buyers is a 25% increase in top line revenue year over year.
This is why large corporations tend to grow through acquisition. It’s often easier to bring in a group of new customers by purchasing an existing company rather than putting in the groundwork to build an entire company from the ground up.
2. Have a recurring revenue stream
While having repeat customers is obviously a good recurring revenue stream, it’s actually not as highly valued as others, Laura says. You don’t just want to have repeat customers, you want to have locked in recurring revenue that is guaranteed.
Subscription models are a good way to guarantee recurring revenue, she notes. What makes subscription models great is the predictability they bring with them. They make it easy to predict how much revenue you’ll have coming in in the near future.
Even businesses that sell products can have subscription models built into them, she notes. If you’re providing a service in a B2B environment and you have many recurring customers, you can transfer those customers to long-term contracts to lock in their business. So, rather than telling a prospective buyer that you have long-term customers that you’ve kept for X amount of time, you can actually show them the contracts that lock in that recurring revenue.
It will also help your company stand out from your competitors who haven’t bothered to lock in their long-term customers to a guaranteed recurring revenue source.
3. Have your processes and systems documented
Laura says that when she mentions this to business owners, they tend to roll their eyes and groan. However, as tedious as it might be, companies that already have their processes and systems documented and ready to hand over to new owners are much more valuable to potential buyers than companies that haven’t done this yet.
Rather than having the knowledge about your business processes in someone’s head (like the owner or a key employee), these processes should be documented and available to anyone who requires it, including potential new owners.
Many business owners tell Laura they don’t have the time or inclination to sit down in front of a computer and write out all their processes, but she notes that they don’t have to do the writing themselves.
If the business owners want to just talk, they can record a video or audio file and have it transcribed and written professionally and have a flow chart created.
Another option is to record processes with video and edit it together so you have a video manual.
So, there you have it! If you are looking to sell your business in 2021, make sure it has growth potential with guaranteed recurring revenue and make sure you have your knowledge about the business’ processes written down and ready to share with potential new owners.
I know things have been especially difficult for many of us in 2020, but I hope 2021 will bring a new beginning for the whole world, one where we can put the pandemic behind us and look to a brighter future together.
Cheers to turning a new leaf in the new year and may 2021 be a better year for you!
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