Selling your business can be harder to do than starting one.
The best time to start thinking about selling your business was 10 years ago. Unfortunately, if you didn’t think about selling your business then, the time has long passed to prepare yourself and your business by doing the things that make it an attractive investment to the next possible owner.
Most potential purchasers will have to apply for financing to purchase your business. Financial lenders will be looking at your financial statements over the last several years and will be analyzing other aspects of your business to decide if it has enough value and potential to be worthy of the risk to approve a loan.
I recently looked into the purchase of another shop. After spending an hour at the shop and another hour looking at the financial statements, I quickly decided the purchase of the business would be expensive and risky. The hoists were in poor condition and did not have any dated inspection stickers. The shop’s equipment and the scan tools were five or six years out of date. Two of the three technicians were actively seeking employment elsewhere, and none of the technicians had been offered any updated training for over five years. The business was only creating enough sales to allow the owners to make less than their highest paid technician.
The current owners bought the business five years ago from an owner who was burned out and ready to retire. The new owners complained that the old owner had attracted a type of client who wouldn’t pay for diagnostic work, demanded cheaper parts or wanted to supply their own parts. But the new owners had done little or nothing to attract a new base of clients or to educate the current clients on how they wanted to do things differently. The new owners felt they were victims of the previous owners’ business habits and were afraid to lose those clients, so they continued to let the clients dictate how they wanted their vehicles maintained.
The bottom line—it would have taken a major investment to turn this business around. It would cost a lot of money to replace the hoists, shop equipment, software and a new client base. In my opinion, the business was a negative number. Lending institutions are not just looking for physical assets as collateral, but the potential for the business to earn profits so you can make the payments on your debt.
Learn your lesson
The lesson to be learned is that if you expect someone to see value in purchasing your business, then the things that build value must be in place.
Is your shop equipment well maintained and up to date? Does your shop have a core of happy, skilled staff? Does your shop have a large base of regular clients that have been trained to understand the value of maintenance and what the cost of diagnostic and inspection work is?
Any potential buyer and any lending institution will be looking for the value in owning your business, which takes years of hard work to achieve; it can’t be created or established overnight.
If you want to sell your business and plan your retirement around the value of your business, take stock and fix what’s wrong so you can prepare for the future and succeed and prosper.