Business owners often have an inflated view of their enterprise when it comes to answering the question, is my business worth buying now or sometime in the future?
Truforte Business Group, a Florida business broker and consultant, says there are 8 drivers of business value. My conversation with Gary Gardner of Truforte highlights the importance of three of these drivers in particular and where worth to a buyer can be interpreted very different from that of the seller.
While you listen, think about how your company measures up to these drivers of business worth.
WHAT YOU’LL LEARN FROM GARY GARDNER OF TRUFORTE BUSINESS GROUP
HOW LONG DOES A FINANCIAL PERFORMANCE TRACK RECORD NEED TO BE? (1:53 in)
In Gary’s words – On the minimum side it would be about 3 years. The more information you can show historically, especially of growth, in revenue and profit, the better it’s going to be for the seller and the buyer.
Insight – Make sure your numbers have been audited or verified by a CPA or accounting firm.
WHICH IS MORE IMPORTANT, HISTORICAL GROWTH OR LONG TERM POTENTIAL? (3:41 in)
In Gary’s words – The buyer is buying futures. Future growth, profit, cash flow.
Insight – A lot of due diligence is necessary by both the buyer and seller to evaluate future potential.
DESCRIBE WHAT YOU MEAN BY THE TERM “SWITZERLAND STRUCTURE” WHEN EVALUATING BUSINESS PROSPECTS? (4:28 in)
In Gary’s words – You don’t want to be overly dependent on a single employee, a single customer, or a single supplier.
Insight – By not being dependent on one or a very small group of employees, customers or suppliers, the business should be able to withstand loss of key personnel or accounts better.
IS FUTURE CASH FLOW MORE IMPORTANT THAT CURRENT CASH FLOW? (6:38 in)
In Gary’s words – Correct. The buyer is responsible for the working capital. They’re going to be figuring out how can I grow that cash flow.
Insight – Any type of long term commitments that generate recurring revenues will be valuable to the buyer.
AS A BUYER, HOW DO YOU GO ABOUT ASSESSING CUSTOMER SATISFACTION AND BUSINESS GOODWILL? (10:39 in)
In Gary’s words – You go out to your customers and you’re asking them to objectively evaluate their relationship with your business.
Insight – Determine a net promoter score – the difference between what people are saying positively versus negatively about you.
WHICH DRIVERS OF BUSINESS WORTH DO BUSINESSES FALL SHORT IN THE MOST? (15:44 in)
In Gary’s words – The three that I would highlight would be growth potential, recurring revenue, and that customer satisfaction score.
Insights– Don’t underestimate the opinions and perceptions of your company by customers and prospects.
HOW LONG SHOULD IT TAKE TO SELL A BUSINESS? (18:02 in)
In Gary’s words – It will take typically a year.
Insights – Part of the process will involve identifying legitimate buyers for a business on a confidential basis without public disclosure to customers, prospects, and employees that the business may be sold.