What Makes A Business Easy To Sell?
Every business I sell is very different in lots of ways. What niche are they in? Recurring revenue or one-time sales? Physical or digital? Services or retail? There’s lots of different kinds of businesses, and lots of different kinds of buyers for those businesses.
But the businesses that sell quickly and for a great price all have many features in common. Sure, my buyers have diverse backgrounds – personal interest or professional expertise in that niche is usually what catches their eye at first – but the quick sales all have certain features in common. Plus, even if the niche isn’t that popular, having these features makes buyers much more interested anyway!
Good financials are the key to a buyer’s heart – and to mine! Financials tell the story of your business and help a buyer understand where money is coming from, what you’re spending money on, and where extra profit might be found.
- Are you able to show all profits and losses?
- Sometimes businesses get started accidentally – you design a few hats for friends, people start stopping you on the street, and before you know it you’re placing wholesale orders. Most buyers aren’t too concerned if you didn’t have an LLC or a business bank account right at the beginning, but you definitely need to be able to show those expenditures and income. Undocumented income essentially doesn’t count towards your valuation, either, so any income that you can prove will help put together a stronger case for a better price.
- Are your income and sales taxes up to date?
- Just because your sales aren’t made in person doesn’t mean you are exempt from sales taxes. In many states, you’re only required to pay sales taxes on sales made to customers in your own state – so it might not be a big bill, but buyers will feel better seeing that you’ve paid it.
- You don’t have to register a business in order to owe taxes on its income – so don’t think that keeping things unofficial means you’re off the hook for taxes. This can become a very big issue if your business grows faster than expected and you weren’t keeping track. Sure, the contract would absolve them if there were taxes due on income that the previous owner earned, but only after years of trying to get the IRS to assign the debt to the old owner. This is why no savvy buyer will touch a business that has not filed income taxes or otherwise may be committing some kind of tax fraud. More to the point, I do not list businesses that are not up to date on their income taxes or otherwise can’t provide tax documents.
- Does your profit and loss statement match your Schedule C?
- As we discussed above, you’ll need to provide tax documentation as well as full financials. But if these documents don’t match, buyers will sniff it out. If there’s a difference for a good reason, such as running more than one website under the same LLC, buyers will understand the circumstances, but there shouldn’t be big, unexplainable disparities.
- Savvy business owners know you should have all your expenditures listed on your Schedule C in order to get the greatest tax deduction possible. But when selling, it might seem beneficial to “lose” a few expenditures along the way and not add them to your profit and loss statement, thus bumping up your overall margin. Wrong! Buyers aren’t expecting to see miracles, and a lack of normal expenditures will seem suspicious. No shipping costs for a retailer? No hosting or advertising expenses? If you don’t have common expenditures, and there’s no good explanation why not, buyers may think this isn’t the only thing you’re hiding.
- Does this business sell something people want?
- The wonderful thing about the internet is that whatever you want or need, there’s probably a website with six different colors of it. There’s really something out there for everyone. But the more generally appealing your niche is, the more likely it is that it’ll catch a buyer’s eye. On the flip side, if you’re bringing in tons of cash on something people have never heard of (home delivery crickets? selling magazines to inmates? been there, done that!) buyers will definitely give it a look, and you might just win them over to your way of thinking.
- Can you show where customers come from?
- Especially if your business is in an unusual niche as we just discussed, it’s very helpful to have clearly defined customer acquisition methods. Word of mouth is important, but you should be able to show reviews on other websites, click-throughs from Facebook, affiliate sales – essentially, if a website has no traffic and no referrals from other sites but lots of sales, there’s probably some cooked books. Buyers are also interested in knowing what kinds of promotional methods you’ve tried and whether they worked or not. Telling buyers that everything you’ve tried has been successful is not realistic and will make them question how complete of a picture you’re painting for them.
- Are all your costs included and is your profit realistic?
- In the same thread as above, buyers do expect to see certain costs for certain types of businesses. Removing them will help your profit margin, but savvy buyers will ask and you’ll lose a lot of trust with them if they find something crucial missing. Similarly, we all want to see high profit margins, but if you’re reporting margins that are unrealistic for your industry, they’ll want to know very, very precisely how you’re achieving that. Actually, having high overhead can sometimes be a selling point – reducing overhead is a frequent way that new owners start increasing margin, so it’s easy profits and very attractive to buyers.
- Are you giving a realistic estimate of your time investment?
- Every buyer wants to know how much time is needed to keep the business running. Needing 40 hours to make $1,000 is very different than needing 5 hours! If you’re running your business in ten minute chunks here and there, it can be difficult to add it all up and actually know how many hours get devoted to it. It’s smart to make an estimate and then try to keep track for a week to see where the hours actually go – those “just a couple minutes” email sessions on your phone, or a quick client chat over Skype, should also be counted. Sellers frequently underestimate the time they spend on the business because they aren’t including the time they spend on the business away from their desk or office.
- Does running your business require certain skills?
- If you run a retail shop, it’s much easier to teach your buyer how to place wholesale orders or load new items into the inventory than it would be for a web designer to teach their buyer how to code. For many small businesss, the owner’s skills are what the business is actually selling. This doesn’t mean the business can’t be sold, but in some cases it’s more like selling a client list. Consider looking at ways to push some of the tasks onto a reliable freelancer or expanding other parts of the business that don’t need a certificate in underwater basketweaving for a new owner to be successful.
- Does the business need to be located in a certain area?
- Many web businesses can realistically be run from just about anywhere – if you’re a dropshipper, it doesn’t even necessarily have to be in the same country. But if you need to source product from a certain area, rely on local businesspeople for important tasks, or your business shares facilities with another, it could be tough for a new owner outside of the area to take up the reins.
- Are your customers accessible to others?
- If most of your customers find you through your blog, local contacts, or referrals from friends, a new owner won’t have access to those and could have a harder time bringing in customers. If you think that might be an issue, you can work on boosting outside referrals or advertising. This is one reason buyers love to see high subscriber counts for your email list and social media profiles – those are usually included with the sale, so it’s a surefire way to have access to your customers after the sale is complete.
Of course, these aren’t the only things that make a buyer’s heart sing – an easily targetable niche, good PR and media mentions, included inventory, and other positive features can help support the listing price for a business that’s got a few negatives. You’ve got to help the buyer dream big about the great things they can do with the solid foundation you’ve built, and having good fundamentals means they’ll worry less about the potential for totally mucking things up the second you hand over the keys.
Curious about what your own business might sell for? Send me an email at [email protected] for an evaluation!
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