Some clients who request the sale of their small businesses think that the annual revenue dictates the entire sale price. This might be because they purchased the business that way themselves.
However, there are many factors beyond revenue that influence buyers' decisions. Let’s explore these factors.
1.) Recent Performance
While the amount of revenue is important, how that revenue has changed over the years is also crucial. Experienced buyers typically look at the revenue changes over the past 2-3 years. Naturally, under similar conditions, a business with increasing revenue over the past few years will sell better.
2.) Ease of Transition
Buyers will consider whether there are significant industry regulations, if new licenses need to be obtained, whether it’s easy to learn the business operations, and if managing employees will be straightforward for the new owner. If these aspects are challenging, it will be harder to sell compared to other businesses of similar size.
3.) Transparency of Financial Record
Many small business owners keep separate records for tax reporting and actual figures. The issue is not the separation itself but the poor organization of the actual figures. Most owners simply pocket the cash earned each day. In such cases, the buyer has to rely solely on the seller’s word about the actual revenue. If there are two businesses, the one with well-organized actual records and corresponding bank deposits will naturally be more trustworthy and easier to sell. If the owner cannot prove actual revenue, buyers will start with skepticism regarding the owner’s claims.
4.) Clientele
Factors like whether the business holds a list of major clients, if there is an organized list of contact information, if there are a few large contract clients, and if the current contracts are transferable, play significant roles. From the new owner's perspective, they will need to notify clients about the ownership change and advertise accordingly. Targeted advertising is far more effective if the target audience is already defined.
5.) Differentiated Products and Services
It’s crucial to assess whether the products or services offered are differentiated within the industry or current market. If only similar products and services to competitors are provided, the business will naturally lack competitiveness. However, if differentiated products and services are offered in addition to the general ones, the business will be much more attractive to potential buyers.
In the next article, we will continue to explore factors that influence business sales.
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