It’s difficult to see “both sides of a coin” at the same time. However, you can look at one side of the coin while being mindful of what the other side looks like. It’s my job as a business broker to remind the business seller the do’s and don’ts from both sides of that coin in what will be one of the most significant events of their lives.
“PROVIDE A CLEAR, CONSISTENT STORY WITH BOTH YOUR NARRATIVE AND YOUR FINANCIALS.”
Buyers never know as much about the business as you do and that is a source of anxiety. It doesn’t matter how transparent you are throughout the process, information asymmetry occurs, and it needs to be respected. You should provide a clear, consistent story with both your story and your numbers. Compelling, well written and thorough Confidential Business Review’s (CBR) make a compelling, consistent case.
“…YOU ARE NOT THE ONLY GAME IN TOWN.”
The buyer is looking for opportunities, plural. At any time, they are comparing your business to all the others they have seen. Over half the businesses we sell go to people we know, and we’ve shown each of the many businesses. Not only are they comparing your business to others, but you’re also competing against other ways they could invest their time and money:
- Stay where they are
- Work for someone else
- Start something from scratch
Each of those has a different risk/reward profile and you are not the only game in town!
“BUSINESSES ARE VALUED BASED ON EARNINGS AND SOLD BASED ON POTENTIAL.”
To any new owner, there is a risk they are willing to take. They have a dream of what the future will look like and are excited about that potential. This is the same potential that sellers tend to fall back in love with during the sales process!
Business brokers have a saying, “businesses are valued based on earnings and sold based on potential”. Performance data determines both what the buyer is willing to pay and what the bank will loan against The upside is key, however, and is what makes them want to take the risk and make the investment. Other than during creative deal structuring and companies selling to non-owner operators, sellers should not expect compensation based on unfulfilled potential. Some of our most interesting deals happen when we help the parties get creative.
Published November 21, 2018
Topics: Blog | Selling
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