So your business is for sale, and nothing has happened. Why?
Every business will sell – if priced correctly. Usually, the price is based on a multiple of seller discretionary cash flow (SDCF) and there are various factors you can use to establish the multiple. If you ask 100 people, every one will have a different opinion, but the only factor that really matters is what a buyer is willing to pay.
On the upside, the higher the SDCF and of the fewer negatives (listed below), the higher the multiple.
On the downside, the discounts or negatives a buyer will apply to the price are:
- Unclear financial records, including poor accounting practices and poorly formatted financial statements
- Undocumented cash
- Excessive personal expenses
- Declining sales
- Poor industry outlook or outdated business model
- Accounts receivables with accounts over 45 days (no accounts receivables or prepaid is the best)
- No plan for what is needed to take the business to the next level
- Customers representing more than 10% of total sales (how many, how much over 10% will determine the amount of the discount)
- Issue with business facility lease; facility has not been well-maintained; facility is messy, dirty, and/or disorganized
- Major investment required to update equipment or remodel the facility
- The business is the seller, no middle management, business excessively dependent on seller’s presence, no tenure of employees, or high employee turnover
- High concentration of sales in limited number of products or services, lack of diversification
- Minimal repeat customers, whether selling a consumable, and length of sale cycle to reorder
- No written business procedures, policies to help transition to the buyer
- Incomplete “package” of business records for potential review (needs basic information such as month-by-month sales for prior three years, federal tax returns, and year-end financial statements; list of business assets being sold as part of the business, with model numbers and approximate FMV, copies of any distributor or franchise agreements – all should be available for immediate downloading from a virtual data room when appropriate)
- Whether inquiries responded to immediately
If you would like a confidential, no-obligation analysis and discussion of what you can be doing now to prepare for when you are ready to put your business on the market, please call (888-893-6661) or e-mail ([email protected]). I serve customers nationwide. To learn more about my background and see customer recommendations, visit my LinkedIn profile at http://www.linkedin.com/in/dolansales.
© 2013 Dolan Sales, Inc.