Is your business actually sellable?

  • Owner Dependency.

    If the business stops working the day you stop showing up, a buyer is really just buying a job. Most buyers don’t want to sit in the day to day operations but build the strategic roadmap for growth and success.

  • Thin or inconsistent margins

    Buyers and lenders underwrite trailing cash flow based on a minimum of three years of sustained growth. Are you able to show consistent revenue generation in consecutive years?

  • Clean Financials

    Inconsistent books are a killer when trying to sell a company. Even if your account is reputable, do your books tell a consistent story year over year? Don’t make your buyer try and figures out your quality of earnings. Make sure these your last 3 years are clean and consistent.

  • A path to buyer financing

    The SBA, local, regional and national lenders need to be told the company’s financials can support the debt service requirements. Can your company tell any lender a good story?

    Also be cognizant of old and aging equipment. A buyer needing a large capital injection from the start is also a red flag and often times a deal breaker.

  • Unrealistic multiple expectations

    Before talking to a business broker who’s first question is typically “what do you want to sell it for”, you need to know what the business is worth and what the market will bear - those are often two very different numbers. A broker should be your last stop, not your first.

  • Customer Concentration

    A handful of clients driving most or all of your revenue can be a very red flag. Buyers are trained to look for that. Build out a plan to limit your customer concentration before you consider selling.

Make It

What our Sellability Check covers

 

Owner Independence -

Can the business run without you - 30 days, 60 days, 90 days?

3-Year SDE Trend -

Sellers discretionary earnings need to be fair to the buyer. The add back schedule shouldn’t artificially inflate expectations only for the buyer walk away. Remember, the SDE should not only provide income to the buyer but needs to be able to satisfy any debt the buyer may need in order to purchase the business.

Debt Service Coverage -

Understanding the buyer community is only the beginning. No buyer wants to invest $1MM for a ROI of $80k. Most SBA type loans are 5-10 years (up to 25 years with Real Property valued at ~60% of the total asking price). Returns need to at least surpass a money market account!

Documented Systems -

I know spreadsheets make the world go round, but that exposes buyer and their lenders to more risk than necessary. Make sure you are not working off of post-it notes and have auditable systems in place.

Realistic Multiple -

Understanding your numbers before talking to a broker is the best place to start. Use the lens of a buyer and their lender and be able to tell a great story of why your business is valuable. You will need to help the buyer tell the lender a great story in order for financing approval.