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The Importance of a Tan When Selling Your Business

by on
in The Business of Business Finance

Many entrepreneurs are proud of how hard they work, 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 5 years" or "I typically work 80 hours a week".  While heroic, such confessions will ultimately be expensive.

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 business 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 purchase 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, better to be tan.

Contrast that image to a company where the owner is almost absent.  If the business is not dependent on the owners 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.

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{ 2 comments… read them below or add one }

todd April 23, 2010 at 12:46 pm

Seems like you do not need an improved sense of humor either…

Thanks for reading and your comment.

Todd

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Don April 23, 2010 at 11:37 am

Insightful. Question: What if I don’t need a tan? You know … already have one….

Thanks for the article.

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