What Makes a Business “Sellable”?

I have been asked a thousand times what makes a good listing? My answer is simple – I want a business with potential to grow, that has three years of rising sales and profits, has perfect financial records and a highly motivated seller. If you can’t find one of them, you might take some listings that don’t quite check all the boxes.

It might be easier to list the things that can make a business not sellable. We have all run into these conditions – sloppy financials, lack of customer diversity, too much family working in the business. The list is long. At the top of the list are seller motivation and seller expectations. Many of the problems can be overcome if the seller is truly motivated and his or her expectations are realistic.

So many people will only sell one business in their life. Because of our association with real estate, many view selling a business like selling a house. It is not. While we share the same license, we are not real estate agents. We are business intermediaries. Our roles are different.

It is the role of the intermediary to set expectations. You are in charge of that! In my experience, expectations must be set before taking the listing. I recently closed a transaction that I worked on for three and a half years. The sellers would not budge on their price (50% above my initial valuation). Under no circumstances would they hold a seller note. They had to have a buyer with direct industry experience. They also had no financials when I met them 3.5 years ago. I was able to keep the listing and achieve success because the seller’s expectations were set. I told them at the beginning this would not be quick. I educated them about the valuation and what was driving that number. I connected them with an accountant and told them to keep running the business. If you continue to grow the business, it will eventually be worth your asking price. They did and it worked.

Usually, the biggest expectation we deal with is price. If my valuation says $500k and the seller wants $1.5 mil, the meeting is over – call me if you need my help. I think it would be unethical – as a professional – to take a listing far above my valuation. By taking that listing you are telling the seller it is possible. That feels like misleading to me.

You can make your listings more sellable. Set reasonable expectations at the beginning. Dig in deep and find the issues that could be a deal stopper. Be prepared to explain the issues and propose solutions. Stay in close contact with your sellers. Update financials monthly. They need to show growth even if it is modest. The trend (direction) is critical.

Your knowledge and training brings a lot of value to the transaction. They can’t do this without us.

Happy selling.