Selling a business can be a daunting yet exciting time. But, what most business owners don’t realize is that the sales process starts long before they ever decide to actually list their business. It’s vitally important for business owners to grow sales and accelerate their top-line revenues in the years leading up to bringing their business to market. Buyers are looking for businesses that have not plateaued. Buyers want to see sales growth in the years leading up to the sale of the business. Consistent year over year revenue growth demonstrates the likelihood of sustainable strong growth opportunities into the future.
And the focus on revenue generation does not stop when the business is brought to market. It is important to engage a seasoned business broker who is able to completely manage the sale of the business. This way you, the business owner can focus on increasing sales while the business is being actively marketed. It is absolutely critical that business owners keep their eyes on the revenue ball and refrain from mentally checking out from daily operations.
DON’T TAKE YOUR FOOT OFF THE GAS PEDAL WHEN SELLING YOUR BUSINESS
Here is the cold, hard truth. If you are not growing and replacing customer attrition with new clients, your business is actually declining. I often come across once-successful businesses which are now faced with stagnated sales. Most times, a lack of both focus and investment in sales activities are the primary cause for the decline in revenues.
While the loss of a major client can have a dramatically negative effect on revenues, especially in the year preceding listing the business for sale, it is the nature of business and can be explained to a prospective buyer. However, in the absence of growing revenues above and beyond the loss of a major client, the buyer is likely to revise their offer in the best of cases or simply walk away from the transaction. Overall, if the business can demonstrate accelerating sales and new customer relationships the drop-in revenues can be somewhat cushioned and the transaction can remain on track. Additionally, it is important to know that the lender (SBA or other) will not be willing to fund a transaction for a business with declining revenues.
It is extremely difficult to quickly produce top-line growth. I’m continually astounded by how little investment some mature businesses devote to their own sales. I have seen businesses that have been around for 40 years; early on, the business owner really hustled and did everything in their means to grow the business. But once that business started producing a great income and lifestyle for the business owner, they stopped focusing on sales growth and thus the business’ top-line sales began to decrease… and continued to do so.
THE MOST SALEABLE BUSINESSES ARE THOSE WITH CONSISTENT SALES GROWTH
Stagnated profit growth means less cash on hand to invest in sales and marketing activities. It is a nasty cycle that becomes almost a death spiral for a business and is very difficult to reverse in the near term. That is why, even in the best of times, smart business owners continually invest in the sales process. Most highly successful businesses devote 5%-8% of revenues to marketing and advertising, and they view this as an investment. Interestingly, less successful business owners treat the cost as a sustained expense rather than an investment in which they expect a tangible return over the long term
A lack of investment in sales and marketing usually results in a decline in top-line revenue, which makes a business less attractive to a buyer and ultimately decreases its value, i.e. the final selling price.
You need to always be selling!
WHAT TO DO IF YOU WANT TO SELL YOUR BUSINESS IN THE NEXT FEW YEARS
If you feel like your sales may be atrophying and you are considering selling your business in the next 3-5 years, there are things you can do now to dramatically improve your market position – and it mostly boils down to increased sales. Once the time comes to bring the business to market, it is simply too late to start the ball rolling.
A renewed focus on sales can take many forms including an increase in marketing and advertising investment, adding to your sales team, increasing communication with existing customers to drive incremental or organic sales, and a very strong focus on new business generation. Or, ideally, all of the above. Talk to a business broker now to find out what you should be doing to best position your business for a sale.
The bottom line is this. Businesses with increasing or accelerating revenue growth are among the most attractive to buyers and ones for which they are willing to pay a premium. If you are interested in selling your business in the coming years, don’t simply rest on your past success, no matter how glorious it was. Instead, put the sales pedal to the metal and put in the hard work today to ensure top dollar for your business tomorrow.
Gregg Kunz is a Colorado Business Broker and Certified Business Intermediary (CBI). Prior to becoming a business broker, Gregg held executive leadership positions in fortune 500 companies where his responsibilities included building and growing successful sales organizations. He is the principal broker at Rocky Mountain Business Advisors, a Denver Business Broker, and is widely considered an expert in Mergers & Acquisitions. Contact Gregg at 303.474.5582.
Please note: If you’re looking for a “business broker near me,” we’d love to help you! Our office is in Denver, and our business brokers cover all of Colorado and the Denver metro area, including: Aurora, Centennial, Wheat Ridge, Lakewood, Littleton, Englewood, Denver Tech Center, Arvada, Golden, Northglenn, Thornton, Westminster, Broomfield, Highlands Ranch, Brighton, Lone Tree, and Commerce City. We also help business owners in Wyoming and New Mexico sell their businesses.