For someone to invest in your business or even take it off your hands, the company you have set up needs to be proven as valuable. When addressing sellability, you’ll get to know what’s undermining your company’s value, so even if you’re not planning to sell (or not planning to sell right now) knowing that it’s in a fit, and the sellable state gives you reassurance and a sense of security and achievement.
If you are thinking of selling, here are some of the pros and cons, and pointers to what you can do to get the best price for your business.
The Sellability Score
Designed by best-selling author John Warrillow, this identified eight factors that can loosely be defined as:
- Financial performance –projections for the future, based on fact
- Scalability – how easy or hard it is for you to grow your business
- The Switzerland Structure – risky over-dependence on a single or a small number of customers, suppliers or employees: what happens if they go?
- Valuation see-saw – a business that needs more cash has less value
- Reliability and repeatability – the more reliable your income streams are, the more value your business has
- The Wow factor – can customers tell the difference between you and the competition?
- Customer satisfaction – you need to be able to prove they are happy
- Hub and spoke – if your business over-depends on you, you have a problem
Warrilow and his researchers analysed thousands of businesses and concluded that those that achieved a score of more than 80 out of a possible 100 could attract offers that are 71% higher than the average company. If your score is low, you clearly have some problems to address if you want to make a good profit on your years of hard graft. However, you might still think you want to sell, and fast.
Winners know the right time to sell
Maybe you feel burned out, or you’ve discovered a new challenge. Perhaps you feel your efforts are not reaping the rewards you imagined. These are common reasons why people get the urge to sell their business:
- The business isn’t performing well, and you’re unable to turn it around
- You’ve built a profitable business that is attractive to buyers
- Perhaps you’ve assessed that the market is moving against you
- You want to move into a different market
I’d always counsel not making a knee-jerk reaction, but you do need to take positive action. Undoubtedly this means getting other people involved – your stakeholders, your key employees, your accountant and so on.
A local business coach or mentor will be able to shed light on more than you could ever imagine and help you tackle challenges from a new perspective. While online tools like the Sellability Score can be very useful, there’s nothing quite like sitting down with a commercially savvy advisor and talking it through.