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Target Buyer

Know your target buyer

Just like when you sell your house, different kinds of properties are going to attract different types of buyers.

For example, your classic fixer-upper will attract professional flippers looking for a bargain. A run-down house in a great neighbourhood will attract investors who just want the land.

While a well-furbished, well-maintained property on a nice street will attract young couples looking to overpay for their dream home.

Your business can be categorised in the same way

The key here is to know what kind of business you have and what type of buyers it will attract.

Which do you have? Or, more importantly, which do you want to sell? Tear downs can become fixer-uppers, and fixer-uppers can become dream homes with the right tools, elbow grease and time.

The side benefit of renovating your tear down business into a dream home is that it's much more fun to live in your dream home while you wait for it to sell.

The fixer-upper business

A successful business making year-on-year profit but at a high personal cost to the owner and key staff members. These businesses have made it past the early hurdles of start-up life, have been operating for 3 to 10 years, and would be considered successful.

The key characteristics of the fixer-upper
A business entirely reliant on the owner to operate
Unreliable or unpredictable cash flow
An unfocused business plan or service offering
Reliant on a small number of clients
Low-margin business with significant competition
Dated technology and systems
Buyer Type – Business Flipper
They're looking for a bargain on which they can make a quick profit.
The tear down business 

An unsuccessful business with asset/s. Put simply, your company has a valuable asset (either tangible or intangible) but doesn't have any other supporting mechanisms to make the most of it. 

Tangible assets could include machinery, land or significant IP or patents. Intangible assets could include a brand, specific hard-to-acquire talent or customer data. 

Buyer Type – Scavenger
They're not interested in buying your business, only its assets.
The dream home business

A growing business with consistent cash flow that essentially runs itself, which may sound like a dream, and it is; it's your dream business. 

Buyer Type – Strategic Buyer
They like your business, see its value and will pay a premium.
Hot tip
When it comes to selling, people mistakenly focus on optimising the current state of their balance sheet, which can help them incrementally improve their base price. Still, you will find more leverage by putting effort into expanding your 5-year vision and developing  the maturity of your operations.

Valuation

How to value your business

There are many methods to attempt to calculate the value of a business, but ultimately it is worth what someone is willing to pay for it.

Like when selling a property, there are multiple factors, including market conditions, the skill of the broker, the state of the property, the emotions of the buyers and the heat of the auction.

I got a great deal on my first house just because it rained an hour before the auction.

That being said, it is not art but science that will ultimately provide you with the answer to what your business is currently worth.

Examples

= Teardown

A high revenue but low margin business with little room for growth which is operationally dependent on the owner, isn't going to receive much above their current state asset value.

= Fixer Upper

A business with modist yearly profit but significant growth potential and a stable, well-documented set of standard operating procedures is a much more valuable proposition for a potential buyer.

= Dream Home

A business with high profit, significant growth potential and mature delivery and operations is the unicorn that will be valued at 10x, 20x or even 50x its current operating position.

Staging

How to stage your business

To stage a business ready for sale, we must demonstrate value in all 3 areas of the Impact Positive Business Valuation Framework

Step 1

Build a Dashboard that demonstrates the current health of your business.

Depending on who you talk to (especially if you're going through a broker), this dashboard is called many different things - but don't overthink it.

In clear quantifiable terms, present the current state of your business.

Note that I call it a dashboard rather than a report because, if possible, you want the numbers to be dynamic and constantly up to date. You don't want to spend time continually regenerating the report every single month.

Most accounting software comes with prebuilt dynamic reporting, which you can use.

Every business is different, but think holistically and don't get completely blinded by the financials, which rarely tell the whole story.

Step 2

Develop your 3-year vision that clearly articulates the growth potential of the business.

You're trying to sell the company; why bother setting a 3-year vision, you may ask? Won't the new owner just throw this out and start from scratch?

The honest response is probably yes, and the new owner will set their own strategy. Still, if you as the current owner can't clearly articulate a growth trajectory, you won't be able to price that into the valuation accurately.

Even if your current performance is somewhat lacking,  a compelling vision of the future backed up with data can be included in the price.

Again, as with the dashboard, the specifics of what to include will vary depending on the business -but here is a list of possible inclusions.

Step 3

Build your Delivery and Operations Machine

To turn your fixer-upper into a dream home, you need to develop a business that works on repeatable systems without you or any key staff members.

Having a key person dependency (especially on the business owner) significantly decreases the sale price of the business. It is a trap that many (primarily early-stage) firms fall into, and often, the stress caused by running a business that is entirely dependent on you is why you're looking to sell your business in the first place.

Let me be clear; I'm not saying people aren't a critical part of any business, and I'm not saying you should (or even could) successfully create a company where the performance wasn't linked to the quality of the workforce. It is not a liability for a business to require motivated, skilled experts to operate. The trap is when you need a specific person to succeed.

Experienced buyers looking for a bargain are searching for businesses with weak operations capability.

An experienced house flipper is looking for a house in a good location with solid foundations that they can buy cheaply, renovate the kitchen, paint the bedrooms, and sell the house for a significant profit. An experienced business flipper is looking for the same thing. They are looking for a reliable company with the opportunity for growth, but immature systems they can quickly replace and move on.

You'd paint the house before you sell it, so build your business systems before you sell your company and you’ll get a drastically higher multiple.

Where to start

The journey to selling your business doesn't happen overnight, but it can start tomorrow

Maximise the future value of your business

Take our free 5-minute Business Sale Readiness Assessment to determine where to start in increasing the value of your business.

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