Preparing for the Negatives in Business

by 25th of March, 2020

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Your business is your baby. You’ve conceived the idea, turned it into an enterprise, nurtured the fledging, and now you think it can fly on its own, under the guidance of a new owner. Like all proud parents, you may have trouble admitting that your creation is anything less than perfect, but that can be a big mistake.

The truth is that no business is perfect. If you think yours is, then you’re inviting problems when you try to sell, including overvaluation, difficult negotiations and a longer time on the market. Set yourself up for an easier sale by considering the negatives before the business hits the market.

Think Like a Buyer

The first step is to assess your business and identify where it has room for improvement. The easiest way to do this is to think like a buyer. Take a step back and imagine that you're planning to buy your business. Which aspects of it worry you? Is anything worn down? Are you using any outdated software or equipment that’s past its use-by date?

It can be helpful to walk into your business as if you're a customer, especially if you have a shop front or office that welcomes customers. Think about the decor, customer service and the products on display.

Don’t just concentrate on what the customer sees; your potential buyer will see the back of house as well. Consider your accounting and stocktaking systems, contracts, leases, brand reputation and customer base. These are things the buyer needs to be sure about before making an offer.

Mitigate the Negatives

Now that you have an idea of the negatives, it's time to mitigate them. Remember, everything you identify as a negative is something the buyer will see as a risk. And buyers aren’t looking for risks. These common negatives are often found in businesses for sale. This is how to fix them.

Concentrated Customer Base

Does all your business come from only one or two clients? This is a danger. If one of those clients decides not to work with the new owner, the company could lose almost all its turnover at once. A buyer will be aware of that. Take time to diversify your customer base to spread the risk, and get contracts signed to give buyers confidence that customers won’t disappear when ownership transfers.

Outdated Stock/Equipment

There are a number of areas in a business where its age can show. If you have a retail space, make sure your stock is up-to-date and selling regularly. Also, decide if a lick of paint or new signage will improve the presentation of the area. For manufacturers and tradespeople, it’s more likely that equipment will be worn down. Upgrading in this area may give you a good return on that investment.

Owner-Focused

It’s often said that when you’re ready to sell your business, you have to make yourself redundant. Buyers can tell if the company relies too heavily on you, the owner, and they won’t want to take the chance of it falling apart when you’re gone. Start stepping back and letting your staff take the reins.

Inefficient Systems

Sometimes, we do things because that’s how we’ve always done them. If you have a system that could lose a few steps, introduce the efficiencies now. Software is another area where you can often improve systems. Look for updated technology for accounting, stock management or appointments, and implement it now.

It's hard to look at your business objectively because you’re so attached to it. You also already know how things are run, so they don’t seem hard. It can be worthwhile to find some outside assistance, such as a business broker, to help you identify the risks and evaluate when and how to take action to mitigate them.

Contact one of our LINK Offices and speak with our expert team of brokers to help you buy or sell a business smoothly and confidentially.