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Financial Health – The First Step

Posted on Wednesday, April 17th, 2019

By Dan Beenken, Program Director

 

Last month I introduced a new series you might call “Selling a Job vs. Marketing a Business.” The main point is that no one wants to buy a job, an enterprise that provides just enough for someone to be self- employed. Banks don’t want to finance these deals either. So, if you want to exit your company and get paid more than just the value of the assets, you can’t just have a job, you need to have a business. But what does that really mean?


One of the first signs that you have a business, is that you are profitable. It sounds simple – but a business broker I talked to recently estimated that nearly 40% of all businesses listed for sale are not profitable. As such, many of them won’t sell. Or if they do, it will really just be an asset sale. Beyond saying you are profitable is proving it, both to prospective buyers and their financial backers. And by the way, profitable doesn’t simply mean you ended the year in the black. It means that your firm produces the kind of dependable, strong cash flow necessary to finance a new buyer AND allow them to
pull a salary from the firm.


For many businesses that start from scratch, they can get to a point of producing a solid income for the owner/operator without incurring significant debt. A challenge remains: Can the business support a reasonable owner’s salary and pay off the debt load that a new owner/operator will incur? If the answer is yes – then you have checked the first box toward having a “sellable” business. I would encourage you to get a third-party audit done to showcase the strength of your cash flows – which will go a long way toward educating a buyer (and their skeptical financing partners) of the financial health of your firm.


If the answer is no – join me next month were we will discuss another attribute that all “sellable” businesses share in common.