Key Selling Factors

Key Selling Factors Similar to anything else on the market, the product has to be attractive to potential buyers. And in the case of a business, the less risk attached to it, the more a buyer is apt to be interested. In his book, How to Sell Your Business for the Best Price, Vaughn Cox makes a popular suggestion based on the law of supply and demand -- buy when everyone else is selling and sell when everyone else is buying. He also outlines the less strategic times to sell -- when the business is doing poorly; is involved in a lawsuit; is expecting an increase in revenue or profits, making postponement more advantageous; and when the economy is in a recession or the particular industry is experiencing a downturn. He believes it is a sound economic decision to sell if you can net seven or eight times your annual compensation.

Robert L. Hulett, a St. Louis-based merger and acquisition specialist, reminds sellers to always negotiate from a position of strength, "which is much easier to do if your company is prosperous. The best time to sell is when you don't have to." Designing an informal rating scale for key selling factors, as suggested by C. D. Peterson in his book, How to Sell Your Business, will give you an idea of how well your business may fare in the marketplace. Your company's history -- how long you have successfully run the business and how effectively the business has met objectives -- will influence potential buyers. The more solidly you present the firm, the more appealing it will be. Don't forget that the goodwill your company has built up also counts for some points. People are the core of the business. You need to rate your staff's competence, their morale, and whether or not they will remain once the venture is sold.

If the business is overly reliant on you as the owner, it may be necessary to train or hire a successor or offer to stay on, at least temporarily. Products and services are often the business. Consider quality, price, reputation, delivery, service and competitiveness. Be realistic about this evaluation, basing the rating on how prospective buyers would objectively perceive your pro- ducts and services. Undoubtedly, a potential buyer will want to know how well the enterprise has performed financially. Take into consideration the firm's capabilities, history, potential and the objectives achieved. Above all, ensure you can substantiate the performance you claim. (This area will be covered in more depth in the section on "So What's It Really Worth?") Lee Munson of A.L. Munson & Co., a management consulting firm, stresses the importance of cleaning up debt. "Raise capital in order to get the company out from under any financial burdens," he urges. Munson also warns sellers not to sell a business in a distressed state, because "it's difficult to pull off a fast sale at a fair price."

Keeping orderly records and books instills confidence in a prospective buyer. It's not worth trying to hide financial details. Very likely they will come to light and endanger your own credibility and chances of selling. The condition of facilities and equipment certainly influences the sale of your operation. In rating them, consider their functionality, competitiveness and ability to move the business into the future. Just as if you were selling a house, strive to make the work environment as attractive and comfortable as possible to potential buyers. This may entail repainting; cleaning windows, furniture and equipment; or even making repairs.

Existing long-term agreements with customers and vendors are also a selling point, as they in- still confidence in your consistent ability to provide high quality products or services, and pay bills. Your relationship with lenders is an important criterion in the analysis of your business. Financial strength with lenders is an indication of the security and profitability of the company. Very similar to the considerations involved in buying a house, location, location, location is important to potential buyers. A prime location -- with available parking, accessibility, well-maintained surroundings and nearby transportation -- can be a strong drawing card, as well as agreeable terms for leasing space, options to buy and opportunities to expand. A prospective buyer wants to feel assured that the business is suitably situated to help ensure its continued efficient operation.

Will your business survive the decade or will its products and services be replaced by tomorrow's Pet Rock and next year's environmentally correct garbage bag? If long-term growth looks more like short-term life, then you may be in trouble. On the other hand, if your industry and specific marketplace are healthy, these growth opportunities can become strong selling points. It is necessary to rate your competitive ad- vantage in terms of price, products and service. This may well be the time to develop a new competitive strategy. "If you find a buyer for whom you serve as a critical resource in his growth strategy, then you have found a highly motivated buyer," Munson notes. Play off the strengths of your venture, take the weaknesses under consideration, and decide if it is worth making changes that may pay off when the business is on the market. Identical to any other commodity, a company has to be attractive to both a buyer's pocketbook and entrepreneurial spirit.