Here’s How Your Business Finds Safety in Numbers
A buyer’s first action is deciding if your business is a safe investment.
Do you want to know the number one thing that spooks buyers out of buying your business?
Getting your numbers wrong is a surefire way to make it look like you don’t know what you’re doing. Or worse, that you’re trying to manipulate the data into something that it’s not to trick a buyer.
While it would be extremely counterintuitive for any serious seller to want to trick a buyer, it does pay to get your numbers straight. This includes profit, revenue, expenses, and traffic data; knowing your numbers and how to display them is necessary for every business.
Many sellers think that a bad month will deter buyers, but, for the most part, this simply isn’t the case. Before you decide to list your business, go through your numbers and look for any spikes or dips. Is there a reason why this happened? Having successfully negotiated thousands of deals, we know that transparency will help you secure a deal.
Losing out Before You Even Start Negotiating
The other side of transparency is trying to use sales and marketing tricks to paint over the imperfections and oversell the positives.
It’s only natural that you want to show off your business in its best light, but there’s no need for the hard sell. In fact, it’s actually likely to put buyers off as tactics like “the flinch” have become so old that it’s not a good look. Especially in the world of online business, where buyers understand the volatility, it’s only natural that a business experiences ups and downs.
While we’re at it, let’s put some other unnecessary negotiating tactics to bed. Being assertive to establish dominance just comes across as cold and hard to deal with. Massively overpricing your business so you can be negotiated down to your desired price doesn’t work either because the market is liquid enough that buyers will recognize what you’re doing and go elsewhere.
The bottom line is that all of these tactics are unnecessary; you’re better off working to show that your business is worth buying.
Your Business’s Value is More Than Just Numbers
While we’ve spent a lot of time focusing on the numbers, it would be short-sighted to reduce your business down to just that. Instead, think of this data as the foundation upon which everything else is built.
As part of their due diligence, buyers will view your profit and loss statement (P&L) to analyze your financials. Every P&L should include a month-by-month breakdown differentiating between revenue and net profit. Most buyers will only buy a business based on net profit data, not just revenue; a business could be bringing in what appears to be solid revenue but still be making a net loss.
If you’re running an e-commerce business, then it’s also helpful to show the number of units sold per product. This saves you time in the long run as these are the types of questions buyers are going to ask.
Traffic data is something that you’ll need to know as well. For a website, it’s useful to add your monthly page views and users to your P&L so buyers can quickly scan the figures. If they want to go into more detail, it’s possible to grant them read-only access to your analytics platform.
Showing the data in a plain and simple way allows buyers to get straight to the point. Once the buyer understands that the numbers are in order, they can assess the other qualities of your business. When it comes to listing your business for sale, getting a bookkeeper to take a look at your P&L is a good idea. If you decide to list with Empire Flippers, our dedicated vetting team will help to create the P&L for you.
Getting your numbers right and establishing a solid foundation allows buyers to move on to the next steps of their due diligence process. This is where they can see all the additional qualities that make up the rest of your business’s valuation.
To Invest or Not to Invest, That is the Question
There’s a diverse range of buyers that acquire online businesses, and it’s a market that only seems to be growing. Each buyer will have their own set of criteria to find the asset that best suits their needs.
While monthly profit is a consideration, it’s not always a hard line. For example, it might not have to meet $3K in monthly profit — it might matter more that it can be run with a low amount of work a week. A buyer with a smaller budget might be looking for a business that they can grow. The type of buyer will differ for each business, but the one thing they all want to see is that your business is a trustworthy investment.
Birds-Eye View
Take a step back from your business and try to take a look at things from an outside perspective. If you were to know nothing about the ins and outs of your business, would you be able to get an understanding of its history?
Your numbers should provide an overview of your business. A single spreadsheet should be enough to display this information, meaning anyone can take a look and get an idea of what’s going on in a few minutes.
You can use this perspective to analyze how you can improve your asset and shore up any potential risks. Maybe you have a content site that only earns through one affiliate offer. To maximize your exit, you can look to add other affiliate offers to diversify the risk. If, after analyzing your traffic stats, you find that the site’s backlink profile could use some work, then implementing a white hat link building campaign can help turn that around.
These are things that you might not have noticed if you hadn’t stepped away from your business. When a buyer does come in to purchase your business, they’re not going to want to spend too much time figuring out every little detail themselves. Creating standard operating procedures will allow buyers to easily see how certain tasks are performed, making your business a much more appealing asset. This gives them the option of outsourcing work, if you haven’t done that already.
Start Your Exit Strategy Early
To make the most of this strategy, start thinking about your exit early. Even if your business is still in its infancy and you’re not expecting to make an exit, setting your business up for sale is the best way to maximize your profit when you do come to sell.
If you have time, write out a 24, a 12, and a 6-month exit plan. Put yourself in the buyer’s shoes and look at the ways you can improve the business to make it even more appealing. Don’t just consider the numbers — there are several other tactics that you can use, such as building an email list, diversifying revenue, and creating a social media presence.
Getting a valuation is the best indicator of how appealing your business is to buyers. You can do this every few months to track how you’re doing and watch it rise until it hits a figure you would be happy with.
For a free impartial valuation that’s built using the latest market data, check out our valuation tool. From there, you can also set up a free 30-minute call with one of our business analysts who will be able to give you exit planning advice tailored to your business.
