Most business owners are so wrapped up in the many challenges of their business that when Pavlo asks them: “What lies ahead?” Their responses are very vague.
The reality is that there are only two destinations for every business: sale or closure. And globally, 94.6% of businesses started, fail to sell.
Many owners believe that because they have built a business that generates good income; that has put a roof over their heads; that creates jobs and has a productive impact in their industry, it will be sellable – this is not the case and the stats are there to prove it!
Listen to Pavlo unpack why we build unsellable businesses, and how to build with a buyer’s mindset in this podcast from The Money Show:
Pavlo’s view is that as business owners we get wrapped up in how we start our businesses – there’s generally very little capital available so all our focus is on generating cashflow to get things going and build some momentum.
In addition, there are usually demands at home that require money, and we build the business around the needs we have to service.
After years of operating like this it becomes habit, and it is very difficult to realise that you’re still doing things the way you did 5, 10 or even 20 years ago.
Businesses aren’t just sold, they need to be built to sell.
The starting point is to realise that what you need from your business, when you sell it – is not a credible valuation methodology!
Secondly, as wonderful and unique as you think your business is, there are thousands of businesses just like you.
Valuation is mathematical. The maths compares risk and return across the market. And understanding the levers that can increase or decrease the risk and return in valuation is critical.
Buyers look at our businesses differently to how we do.
Buyers have key questions in their mind when they look at a business.
The questions are designed for 2 things:
- To establish whether I can get a return?
- To evaluate how to reduce the price by picking out the flaws in the business
Understanding how the buyer thinks, today, will affect how you build the business for tomorrow.
What are the questions that buyers ask:
- What makes you different from the dozens or hundreds of businesses like you. If you can’t distinguish yourself, that’s a mark against you.
- How far into the future can this business continue. You have to be able to show growth in the past – that will continue into the future. The way to do this is to demonstrate that there are systems to continue this trajectory.
- Who is going to do it? In a buyer’s mind, are they buying the business to run it, in the way that you’ve run it? Will the staff stay? Will it run without you? Often, without the owners in it, there is nothing to be bought. A business has to operate without the business owner, or in effect the business owner has just built a job for themselves rather than something that has value for a buyer.
- How long will it take me to pay off my investment, and is there enough growth in the business to take me into profitability?