Business cannot sell if owner is the business
It’s a sad figure but according to the California Association of Business Brokers, approximately only 25% of businesses ever sell.
That means 75% of businesses never sell.
The reasons are many and to a certain extent they are complex.
They include a business being sold in the wrong part of the economic cycle, major changes affecting that industry in which it operates to the point it discourages potential buyers from taking the risk to buy a business in that industry, poor quality financial statements, a labor shortage as is happening right now in the construction industry as this industry was beaten up badly during the Great Financial Recession and more.
Business cannot sell if owner is the business
An important reason that some business owners miss when trying to sell their business is that it will be too hard to sell because the owner or seller is the business.
To say this another way, if the owner steps away from the business, it runs the risk of being unable to continue to generate its cash flow at its current level. As a result, that risk is too high for a buyer being willing to buy the business and hope they are wrong.
Recently I spoke with the owner of a franchise that installed blinds and window coverings etc. He was the owner of his franchise for many years and was very successful. The business model was for him to track down all sales leads and close the sale. Once the sale was closed, he’d hand the customer across to a third party to make the product and then another third party to do the installation if the customer didn’t want to do the installation themselves.
Now that it had come to a point where he was wanting to retire, he was looking around for his exit options. Through a number of conversations we had together, he realized how difficult his business was to sell. There were many reasons but the main reason was that he was the business. His franchise agreement had a sales territory in which he could operate but the franchise territories either side of him were available to buy. He was hoping to get a $350,000 to $400,000 sales price; a reflection of the cash flow he was able to generate from his territory.
However, to buy a franchise territory neighboring his came with a cost of $35,000 plus another $45,000 to buy a vehicle, attending training, contribute to marketing funds and more.
How the seller fixes not being the business
To make the business attractive to a potential buyer, build the business so the owner manages and is not the key asset in the business. That is, build the business and indeed run the business around human assets in the business but assets that can quickly be trained and brought up to speed when the situation requires.
In the example above, buy three or four or five franchise territories and put salesmen in each territory. The owner of these territories now manages the sales people by training and motivating them…and enjoying the fruits of their labor.
Once this is running properly, now look to expand into areas that complement the sales or performance of the business. For example, hire and train a team to make the blinds and window coverings so you can turn items around quicker. If they are good at what they do, look to get additional work from other sources so they are a successful standalone business unit.
Once this operates successfully, now hire a team to do the installation.
If they are good at what they do, look to get additional work from other sources so they are a successful standalone business unit.
If the above makes sense, simply repeat and execute the same model.
The key piece is to now get all this operating efficiently, coming up with new ideas to see what else you can add to the sales mix to grow and expand the business. This is at the heart of being a successful entrepreneur.
How about considering outside shade and awnings, or adding bedding and linen, or inside home décor items to complement the new blinds or home security systems and more? Very often these add on sales are very easy to achieve as the sales person has built the relationship, which is the hardest thing to do.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.
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