Answering the following ten questions truthfully will help you determine the salability of your business.

Answer “yes” or “no” to the following 10 questions:

1. Can your business operate effectively for an extended period without your presence?
2. Are your financials organized, accurate, and easily accessible?
3. Are your customers’ relationships with your employees and not just you?
4. Are you reporting all sales income?
5. Are each of your customers accounting for less than 10% of your annual sales?
6. Are you drawing a consistent salary from your business?
7. Are you paying family members and friends who work in your business competitive compensation?
8. Are you using social media for advertising?
9. If you lease, will a long-term lease be available to a buyer?
10. If you own your building, are you expensing fair market rent?

If you answer “no” to any of these questions, do not panic.  You can take action to increase the salability and value of your business and potentially put more money in your pocket at time of sale! Below are actions you can take corresponding to the number of the questions above.

1. Your business should be able to run effectively for at least a short period of time without your involvement. This gives buyers confidence your business can succeed after the sale.
   ACTION: Select one or more employees and train them to perform your duties.  One person does not have to know it all, but collectively they need to be able to replace you if necessary.  If this is not an option, you can also hire someone to take over your duties.
   
   
2. Organized, accurate, and easily accessible financials are required to prove the value of your business to buyers. This gives buyers confidence and increases the likelihood of selling your business.
   ACTION: Work on getting your financials organized, accurate, and easily accessible.  If you do not have an accounting system, purchase one and integrate it with your POS system if applicable.  Here is an excellent resource to help get you started:  Start a new business with the right management tools | QuickBooks (intuit.com)
   
   
3. Customer relationships with employees ensure the continuity of these relationships after the sale. This gives buyers confidence your business will succeed without you.  While it is great for you to personally know your customers, your employees should be their main point of contact.
   ACTION: Train and empower your employees to build relationships and support your customers.  
   
   
4. Reporting all sales income helps you realize the full value of your business at time of sale. Failing to report all sales income can reduce your income taxes, but it also reduces the value of your business. Most buyers will not pay for sales income that is not clearly reported.
   ACTION: Start reporting all sales income or implement a provable reporting system of your unreported sales income to share with buyers.
   
   
5. Not relying on a single customer for more than 10% of your annual sales shows your business’s performance is not likely to be significantly impacted if a customer is lost. This gives buyers confidence in the future performance of your business.
   ACTION: Add more customers to diversify your customer base, reduce customer concentration, and ensure no customer accounts for more than 10% of your annual sales.  Try new marketing techniques to attract new customers.
   
   
6. Drawing a consistent salary for the business owner shows your business can support a consistent salary for the new owner. While the amount of salary you pay yourself may depend on your personal tax situation, avoiding paying any salary may lead buyers to question if your business is profitable enough to support a consistent salary.
   ACTION: Consult with your tax advisor to determine what salary is best for you and start paying yourself consistently. Here is a great resource:  how-much-to-pay-yourself-as-a-business-owner
   
   
7. Paying family members and friends competitive compensation shows the true value of your business. If family members and friends are being under or over-compensated and they will be replaced when the business is sold, the cost of their replacement may impact the value of your business.  If they are under-compensated, the value will decrease.  If they are over-compensated, the value will increase.
   ACTION: Start paying family members and friends competitive compensation. Here is a helpful resource:  https://www.monster.com/salary/
   
   
8. In today’s high-tech world, most buyers expect businesses to use social media for advertising. If you do not have a social media presence, buyers may conclude your business is not keeping up with current trends. 
   ACTION:  Develop and implement a social media plan.  If you are not able to do this yourself, there are many resources online.  Here is a resource I found informative:  How to Hire a Social Media Marketer | Hiring Guide: Recruit, Interview, Train (digitalmarketer.com)
   
   
9. In most cases, having a long-term lease available gives buyers confidence they will be able to stay in the same location as they focus on learning and growing the business. Most buyers will either assume your lease and exercise options to extend, if applicable, or negotiate a new lease.  Having a long-term lease also allows them to evaluate if the business can support the lease in the years to come. 
   ACTION: Make sure you understand your lease price, terms, and options. Negotiate a new lease with your landlord if needed or speak with your landlord to ensure a new lease will be available to a buyer upon the sale of your business.  It is also important to maintain a good working relationship with your landlord, so they are helpful when it comes time to sell your business.  Here is a resource that can help: understanding-commercial-leases-exploring-the-different-types
   
   
10. Expensing fair market rent shows your business can support the cost of occupancy. This gives buyers confidence that your business can continue to succeed whether they purchase your property and have a mortgage payment or pay you rent.  Fair market rent is also required by business brokers to compare your business with other businesses that have recently sold to determine your business’s value.
    ACTION: Determine the fair market rent of your property and start expensing it monthly.  Here is an informative resource:  how-to-determine-the-fair-market-value-of-commercial-property

In conclusion, implementing these actions can have a positive effect on your business’s salability and value and potentially put more money in your pocket at time of sale.  Some actions can be completed easily while others will take time.  

Contact me to help you get started!

Janet S. Badalow, MBA
239-677-8428
[email protected]