When it comes to selling a business, making your company more attractive than another, is all about dependability. Who is your business depending on, you or your staff?
Hey guys! So I’m driving down the road and want to give you some insight here. I had a question from a business owner on what makes a small business, or any business for that matter, more valuable than another in the same peer group? Well, here’s the answer.
Let’s say I have Box Building Business A and Box Building Business B. Why would a buyer or investor choose one over the other? Here’s your simple answer: Owner dependence.
If the business is dependent on you, the owner primarily, it’s not going to be as valuable as a business that is dependent on the bench. Think of it this way. I live in East Tennessee. We have this football team called the University of Tennessee’s Volunteers. At any time they have 11 players on the field. However, their bench may have 50 to 100 different players on it in any given season. So if the quarterback gets creamed, which happens a lot, they don’t just have one there’s going to be another quarterback—maybe even two or three backups. The depth of that team, or the bench, if you will, is important. The same concept applies to business.
If your business has a great staff, involved that are answering phones, making the sales calls, creating widgets, or whatever the business needs, then your business is worth more. However, if you are the head, the chief bottle washer, sales guy, answering service, etc., the value goes down.
Yeah, I know it involves employees. It requires you to take time to build your business to sell. So the question of the day was, what makes a business more valuable? Well if my Box Building Business A has a deeper bench and is not totally relying on the owner to operate, then an investor or someone who is looking at buying the business, is going to value that business at a higher value than a business that is solely reliant on the owner.
RELATED READING: The Types of Value a Business Can Have and the Effect on Sellability
If your company is solely relying on you the owner for those relationships, or that knowledge and know-how is only in your head, then how in the world is that investor or buyer going to come in and maintain the same level of production? Now they may. Miracles do happen, but from a valuation standpoint, it isn’t going to be as strong.
For more articles about how to make your business even more attractive to potential buyers, visit out our Building a Sellable Business series.