Profitability is important in valuing a business. But that’s not the only position of value to consider when thinking about selling.
You may hear that if your company isn’t profitable you have nothing to sell. Not always true. In 1993 I sold a management training firm that I had started three years earlier. The company was just building name recognition and had achieved marginal profitability when my husband’s multiple sclerosis forced him into early retirement at 44 years old. We decided the best option was for me to close the business and take a corporate position that would provide more security with less risk for the family.
“Close the doors”, was the advice of an accountant who said the firm wasn’t profitable enough to get an interested buyer.
That negative recommendation took the wind out of my sails. My thoughts lingered on the business loan I had to repay, inventory that needed to be returned, an obligation for our office space lease, and the list went on. My husband and children had already put up with my long hours and low pay for three years. Now this! Just when the hard work was starting to provide a payback in recognition and revenue I was quitting.
Then I started to think about the CEOs and department managers who were seeking us out for professional guidance in selecting training material, motivational speakers for their seminars, and professional in-house training programs. We were filling a need. I thought others must see the value we had created in only three years.
I decided to build a history of the firm, showing profit and loss statements with a trend of increasing revenue. Following that, I built a spreadsheet that listed each customer. After each company I included the invoices, dates, and dollars spent with us to show repeat business from satisfied customers.
It’s interesting, as the owner I knew this was taking place but I had never compiled the data in this way before. Now I had a positive financial trend with repeat customers to share with potential buyers. It was starting to look like we had something to sell.
I didn’t stop there. In the files we had kept notes from customers. Some had written comments of appreciation on the surveys that were sent with each product or service. Some were unsolicited notes from individuals we had worked with who just wanted to say ‘thank you’ for helping them find the best training book, video, or speaker to fit their training need.
The final step was gathering marketing pieces we had developed, newsletters, magazine articles written about us, and training material we helped companies to create. Contracts with trainers & suppliers were added to round out all of the important business documents.
A three-ring binder was put together, creating an impressive picture of what we had to offer a buyer.
At that point I started making phone calls to companies that might be interested in buying the firm. Within six weeks I had three interested parties, one of which owned grocery stores. They bought the company. A rather unusual buyer you are probably thinking. They had two reasons. They wanted to increase the employee training within their stores and owning the firm would make that more cost-effective. The other reason was that one of the owners wanted to create and sell workshops she could deliver, a service that was currently outsourced to professional speakers and trainers.
The moral of the story here is that if you own a business and its profitability is seemingly unimpressive, try looking at the business from the buyer’s perspective. What successes have you had? Think about revenue and profit trends, investments in brand recognition & marketing collateral, inventory, customer lists and even customer testimonials. There is much more to the value of a business than just revenue or profit. Intelligent prospective buyers will understand that it’s often much easier to buy a business (even if it’s not a superstar acquisition) than to start one from scratch.