Selling Your Business
By Jessica Fialkovich | @jfialkovich
As the owner of a business brokerage firm, I often hear two reactions when I ask entrepreneurs if they plan to sell their business or not:
1. “Of course, for millions of dollars,” or
2. “Never; besides my business is not worth anything.”
Unfortunately, almost all of the women I ask respond with the second answer. Our firm, which sells about 50 businesses per year, sells less than ten percent of those for women (which is not abnormal in the industry, if anything it is high).
So what gives? Why do women as a whole discount the businesses they are building and undervalue them as an asset? In my experience, I see one major mistake we are making as a group--we are not building businesses, we are working jobs or hobbies.
Let's jump to the business sale market for a minute. Today’s market is the strongest market to sell businesses since pre-recession dates. Denver is the third strongest market in the country only behind New York and Philadelphia based on median sales price. The outlook for the remainder of 2017 and beginning of 2018 looks strong. However, in order to take advantage of the market now--or in the future--entrepreneurs need to build and treat their businesses for what they are, valuable assets.
In order to start building a business rather than working a job, focus is needed in three key areas.
Strong and Clean Financials
No business sells without a clean financial history. As a business owner, one of your primary jobs is to make sure financial performance is reported accurately and timely. In general, during a sale a potential buyer will want to review the past three years of profit & loss statements, bank statements, tax returns, and balance sheets. The buyer will be looking for not only accuracy in the records, but also positive trends. Key trends could include increase of revenue, profit, or customer base.
Independence from Owner
The one key aspect most increasing the value of a business is the removal of the owner(s) from day-to-day business operations. In short, can the business function without the current owner? This is especially true with sales or any customer-facing activity. The less an owner has to do with whether or not revenue increases, the more the company is worth. Also, businesses that have a technical role (like medicine, engineering, etc.) or rely on an owner to do the work will have a suppression of value, because there are fewer people that will be able to replace that owner and continue operations as is. This is the biggest area women struggle with, because it means letting go of control!
Systematic Processes throughout the Business
The more processes and systems you document--and follow--in a business, the more it is worth. A profitable business that runs like a machine does not stay on the market long! Many business gurus teach this philosophy, yet few entrepreneurs take the advice and decide to implement the ‘wing-it’ philosophy instead. The beauty of processes and systems is once they are operating, you as the owner have a much more efficient (and profitable) business model requiring less of your time. Maybe at this point you decide not to sell and keep the profit-producing asset for yourself!
By strengthening these areas in our businesses, we--as women--can increase the value and open up many more opportunities for our business and personal growth. It may be to sell now, to wait and enjoy a business that functions like an asset instead of a job, or maybe it’s even to buy another business or grow through acquisition by taking over a competitor. Whatever the opportunity or the choice, women business owners need to step up our game and think bigger.