By Dave Driscoll
It’s what’s inside that counts. What does that mean when you are marketing your business for sale to a third party?
Businesses generally fall into one of three categories:
Behind the curve with systems that need to be updated
On the curve with up-to-date systems that enable the business to compete with its peers
Ahead of the curve with internal systems that create a competitive advantage in the market
The status of your business’ systems can affect the perception of risk, as well as the terms and value of a sale.
Significant systems from a buyer’s perspective include:
- Visible deferred maintenance of equipment and facilities
- Website functionality and relevance, search engine optimization (SEO), social media presence, online reviews
- Software systems, point-of-sale systems (POS), customer relationship management systems (CRM), enterprise information systems
- Corporate hygiene including historical and current financial reporting, inventory management systems, HR policies, and Process & Procedures manuals
Consider the “curve status” from the perspective of a buyer…
Behind the curve
This is common in businesses with senior ownership. These owners’ skill sets and desire do not provide the time, energy, and knowledge of current business trends needed to compete. The owners may be complacent, and not interested in changing what, in their minds, is “working.” Many of these businesses are making a modest amount of money, so the owners don’t want to invest in upgrades, and prefer to leave that task to the next owner.
Influence on a buyer: Buyers will see that a substantial investment will be needed to bring the business up to a reasonable operating level, integrating what is expected in a minimally efficient business.
Impact on the seller: The buyer will factor the costs of deferred maintenance into the offer, resulting in a lower price. Sellers then often become indignant, not acknowledging the cost of their choice not to invest in keeping the business up-to-date, and the potential is high that the buyer will walk away.
On the curve
A business in this position has what is expected to compete with its peers in a “Goldilocks” state – not too bad, not at the cutting edge… just right.
Influence on a buyer: The buyer sees a normally operating business where integration is not as challenging as a business behind the curve. Deferred maintenance is not a detrimental factor in value.
Impact on the seller: There is no real impact on the seller if he/she has kept the systems up-to-date through the years. The business value will reflect that the owner has kept the business competitive.
Ahead of the curve
Some businesses embrace systems and technology as a strategic competitive advantage, enabling them to deliver a premium experience to clients. These companies earn positive reviews for exceeding customer expectations.
Influence on a buyer: Buyers will more aggressively pursue the purchase of this business because the seller has invested the effort and money to give the business a competitive position in the market. Many buyers will start the conversation recognizing a premium value, working to move the negotiation along rapidly to capture momentum and realize a faster ROI.
Impact on the seller: The long-term commitment to quality operations will be rewarded with a handsome value. Negotiations will be smoother, with the buyer less apprehensive about protection from lingering risks.
Curb appeal is significant across all industries, at all levels of market development. All sellers can benefit from enhancing the company’s curb appeal. In business today, consolidation is common, and the ease of integrating acquisitions into an overall operating strategy results in quicker negotiations and sales.
Determine where you sit on the curve and calibrate your strategies and expectations accordingly. When your intent is to sell the business, don’t become the obstacle by expecting too much if there is obvious deferred maintenance and investment. On the flip side, if you have worked to keep up or exceed, expect the rewards.
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com