When it’s time to sell my restoration business potential buyers and hopeful sellers are not typically interested in the same financial concerns. Buyers are primarily interested in revenue and sellers are largely interested in profits. Why the difference? The reason is that potential business buyers are interested in what you have achieved. They are mainly interested in your past performance, not your future potential. All the great plans and claims of potential opportunity won’t trump what you have actually done.
Buyers want a stable growing business.
The best indicator of this is historic revenue. If the company is growing, even slowly, a buyer is more inclined to believe the future will maintain its current growth trajectory. A stable business is a more dependable one than one that fluctuates year to year or is in decline. A single down year in the past three years can spell disaster when it comes time to sell. Stable growing businesses sell for top dollar and the rest sell deeply discounted.
Sellers, on the other hand, want strong net profits because that is what they take home at the end of the day.
A business owner’s personal wealth is built on net profits, not gross revenue. Additionally, the sales price for their business will be set using an industry multiple of Seller’s Discretionary Income. If your restoration company is a well-run operation you will likely earn a multiple of 3 times owner’s discretionary income which is made up of a 3 year average of net profit plus any additional discretionary income, such as owner salary and benefits.
Let’s say your business has earned an average $1,000,000 net profit over the past 3 years. Owner salary, distributions, and benefits amount to $200,000 annually. The company sales price is like to be approximately $3.6 million (industry multiplier 3 x $1,200,000 the 3 year average).
See how this works? Smart business owners keep their eye on the ball(s).
They keep their eye on revenue growth and on net profit growth. Each of these dramatically impacts your salability and sales price. A business growth plan that presents a clear and specific strategy for continued growth is essential whether or not you plan to sell in the near future, but it is absolutely vital if you are planning to sell.
Buyers are most interested in a business with increasing revenue and who has a plan in place that shows the sustainability of sales growth after the purchase. Having this plan in place will earn you more than a first glance from a prospective buyer. You also want to pay close attention to protecting your profit from profit killers that diminish your personal wealth and lowers the sales price of your business. You can’t do one without the other and expect to get top dollar when you sell!
Growing revenue and protecting profit is the business owner’s bottom line!
For more information visit my website at http://www.growmyrestorationbusiness.com/blog