by Todd Taskey
Many entrepreneurs are proud of how hard they work, and of the long hours they have invested into building a strong business. Anyone who has built a company knows the hours are long. But when selling a business, it’s much better to be tan.
One of the most expensive statements an owner can utter during the business sale process is “I haven’t taken a vacation in five years,” or, “I typically work 80 hours a week.” While heroic, such confessions will ultimately be expensive.
Why? One of the most important criteria for a business buyer is the ability to own a business that is not dependent on the owner. If you cannot take a vacation or need to work 80 hours a week to make the business work, your selling price just went down.
The buyer will want to be sure you are tied to the business (employment agreement) long enough to make a smooth transition. Additionally, a smart buyer will tie a significant amount of your asking price to an “earn out” based on company performance, client retention, future sales or some measure of company value in the future. If you want to sell and move on, it’s better to be tan.
Contrast that image to a company where the owner is often absent. If the business is not dependent on the owner’s efforts to retain clients, make sales and remain profitable, selling the business is significantly easier, quicker and likely at a better multiple.
Work on your business so that you can work on your tan. When you have a nice tan, perhaps you have a nice (and valuable) business for sale.
Author: Todd Taskey is the founder of Potomac Business Capital and author of "The Business of Business Finance" blog.
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