One of the questions that I'm frequently asked is "what makes a business marketable?" Selling a business is a surprisingly complex and nuanced process, but I recognize that we all crave simplicity so I've distilled the answer down to the most basic characteristics that contribute to business marketability:
The importance of profitability is probably obvious: the greater the profits and cash flow of a business the more attractive it will be and its value will be higher, if all else is equal.
Merriam-Webster defines risk as the possibility of loss or injury. In the context of business marketability a large component of perception of risk is stability of the business’ client base, revenue, profits, vendors & suppliers, systems, marketing, and employees. Instability leads to uncertainty which increases perceptions of risk. Perceptions of higher risk, lead to a buyer paying a lower price because they have less confidence that they will receive an expected return on investment.
Historical growth is considered by business buyers for understanding not only past market acceptance and success, but also understanding trends that may help predict future growth. Buyers will also be interested in concrete identified unexploited opportunities for growth.
Transferability means how easy will it be for a new owner to take over and continue to successfully operate the business consistent with how the business has been managed in the past. This involves gaining comfort with the business' systems, staff, and the owner's role for maintaining quality and consistency of the operations and products and services while retaining clients.
Focusing on the above four basics of business marketability can help you build a business that is easier to sell and that will command a higher price when you are ready exit.
Speaking of simplicity, are there ways that you can simplify your business? Reducing organizational complexity may have a strong impact on profitability, risk, growth, and transferability. Following is a link to a November 2005 Harvard Business Review article that describes how and why complexity can adversely impact a business, and how to determine the right balance between complexity and simplicity for your business.
Innovation Versus Complexity: What Is Too Much of a Good Thing
Here are some additional books on the topic of simplicity that Codiligent would recommend (the third is about presentations - but the concepts are thought provoking for other aspects of business):
- Profitability
- Risk
- Growth
- Transferability
The importance of profitability is probably obvious: the greater the profits and cash flow of a business the more attractive it will be and its value will be higher, if all else is equal.
Merriam-Webster defines risk as the possibility of loss or injury. In the context of business marketability a large component of perception of risk is stability of the business’ client base, revenue, profits, vendors & suppliers, systems, marketing, and employees. Instability leads to uncertainty which increases perceptions of risk. Perceptions of higher risk, lead to a buyer paying a lower price because they have less confidence that they will receive an expected return on investment.
Historical growth is considered by business buyers for understanding not only past market acceptance and success, but also understanding trends that may help predict future growth. Buyers will also be interested in concrete identified unexploited opportunities for growth.
Transferability means how easy will it be for a new owner to take over and continue to successfully operate the business consistent with how the business has been managed in the past. This involves gaining comfort with the business' systems, staff, and the owner's role for maintaining quality and consistency of the operations and products and services while retaining clients.
Focusing on the above four basics of business marketability can help you build a business that is easier to sell and that will command a higher price when you are ready exit.
Speaking of simplicity, are there ways that you can simplify your business? Reducing organizational complexity may have a strong impact on profitability, risk, growth, and transferability. Following is a link to a November 2005 Harvard Business Review article that describes how and why complexity can adversely impact a business, and how to determine the right balance between complexity and simplicity for your business.
Innovation Versus Complexity: What Is Too Much of a Good Thing
Here are some additional books on the topic of simplicity that Codiligent would recommend (the third is about presentations - but the concepts are thought provoking for other aspects of business):
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