While the cold hard numbers of your business are the foundation of your selling strategy, a buyer can be compelled by the story the numbers don’t tell. Communicating the intrinsic value of your business and creating a narrative that excites potential buyers is essential to getting top dollar when listing your business for sale. We’ll give you some suggestions how to tell the story of your business in this chapter.
What is a Business Worth? – The True Value of Your Business
When selling your business — no matter what numbers are on your financial statements — the true value of your business is what someone is willing to pay for it. For this reason, it’s extremely important that you’re able to connect with buyers on both a business level as well as an emotional level during the sales process.
The description of your business in marketing materials, conversations you have with brokers and buyers, and the general way you talk about your business should communicate the unique factors that give your business a competitive advantage. The story you tell about your business should be that it’s a worthy investment and you should have readily available data to back that story up.
Know Your Business’s Growth Potential
It’s true that a healthy financial history and past stories of success are important for telling the story of your business, but buyers are most interested in the company’s future value. When building a narrative about your business’s growth potential, be sure to address these factors.
- The current climate of your business’s industry. You should have a deep understanding of if your market is heating up, cooling off, or is somewhere in between.
- What makes you competitive. Even if your business isn’t in a super hot market, you might have a great service or product that’s been getting attention — be able to tell that story.
- Where are you located? If you have a brick and mortar store in a high growth area that should absolutely be included in your valuation. For example, coffee shops are in no short supply in Seattle but with more people moving there everyday, even independent businesses can compete next to a Starbucks because of high foot traffic.
- Room for expansion. It’s possible that your business has untapped potential that you weren’t interested in pursuing (like opening another location or expanding a service offering) that would interest a buyer. Make it clear in your business sales communications that you’ve set the next owner up for success.
Speaking to the Specific Buyer
Depending on whether your buyer plans to have an active or passive ownership in the business, you may need to be able to address different valuation methods when talking about your business. Some of the valuation methods allow for an owner’s salary to be added back as income — active buyers will like the see this and have a picture of what paying themselves a salary will look like. However passive buyers not planning to pay themselves a salary could see this as an expense needed to keep the business running. This is just one scenario of how one element of your business can be a positive or negative for different buyers. The important takeaway is that you need to be able to discuss these elements positively either way.
Chances are, there’s something about your business that makes it great, but it doesn’t show up on your financial statement — that doesn’t mean it doesn’t have value. Maybe you have a very loyal customer base with stellar Yelp reviews. Or you have long-time employees who plan to stay on and help out the new owner. These are things that can take a buyer from interested to closing the deal.
As valuable as the intangibles are, their inherent nature can make them easy to miss. Ask your friends, family, and employees what makes your business special and build your story about it.
It can also be a good idea to briefly explain why you’re selling your business. This can help reassure buyers that you aren’t selling because the business is failing. Some common reasons for selling include retirement, interest in another business, or relocation.
No one knows your business better than you do, which is why you’re the perfect person to pitch it to potential buyers. Work out a strategic plan to tell the story of your business and you’ll be set with enough information to excite buyers and brokers.