There are 6 major causes of risk for a potential buyer (see below). Your job is to do everything you can that mitigates these risks and enhances your company's value.
6 Key Risks from a Buyer's Perspective:
- Management team: How talented are the managers? Will they stay? What happens if one or more leave? Who will lead the enterprise as a whole?
- Reliance on owner: Will this business work well without you (the owner) around? Which customers rely on your personal relationship to keep them happy? What banking relationships are based on your personal financials or rapport with a specific banker?
- Truth and accuracy of financial records: Are your financial records clean and up to date? Have your financials been audited by outside firms? Are there any warning flags like discrepancies between corporate tax returns, filings, or investor reporting and the company financials?
- Customer base (concentration and future prospects): Are the customer relationships with the company or with the owner? Is any one customer so big that the business would suffer if that customer's orders diminished or went away altogether? What are the future prospects for your key customers? Your industry? Your specific business?
- Competition: Where does your company stand in the marketplace compared to your competitors? How will you assure your prospective buyer that sales and market share can grow, not just be maintained?
- Industry future: What trends affect your industry? What potential disruptors could kill your industry overnight? What contingencies do you have for these scenarios?
The bottom-line question is this: "Are you taking action to mitigate as many perceived buyer risks as possible over the next two to three years before you sell?"
Mitigating risks is half the equation; the other half is enhancing value. What can you do over the next few years to enhance your business's value?
- Can you grow your sales?
- Improve your margins?
- Develop protected intellectual property?
- More firmly establish a brand?
- Deepen competitive advantages?
- Build company systems?
- Grow the management team?
Now it's time for you to take 60 seconds to list out the top 3 action steps you are going to take in the next 90 days based on what you learned in this article. Do it now!
For more ideas on growing your business, including a free tool kit with 21 in-depth video trainings to help you scale your business and get your life back, click here.