There are many different reasons for why a business owner would pursue the idea of selling their business. Retirement, ready for a change, and health reasons are some of the most popular. Either way, once you are truly ready and have decided that it's time to get rid of your business, you are presented with an important question. Do you sell your business as a whole or close the doors and liquidate the physical assets?
Often times, business owners do not know its possible to sell their entire business and will just cease operation of the business and sell off its physical assets at a fire sale price and be done. This leaves the Seller missing out on additional profit from the sale called Goodwill. But how much is your Goodwill worth? This can be a tough question to answer and always differs from business to business. Selling a business is no easy task. There is no scientific formula to establishing the value of your business. Business Brokers, often times will give many different opinions on the value of your business and its goodwill. It’s your job to take all of the information that is given to you and make an educated decision. A simple rule of thumb that we use is this: Are you making money? If you are making money, chances are you have some goodwill value. If you are losing money, fire sale of the assets might be your best bet. We would recommend reaching out to a few different business brokers and seeing what their opinions are before deciding between these two options.
Below are a few easy questions to ask yourself to assess goodwill.
Over the past 3 years has sales revenue increased, stayed the same, or decreased? The big question here is are you making money? When a Buyer is looking at your business they are ultimately trying to decide whether they will be able to support their lifestyle with the income of your business. Businesses that aren't making money rarely are able to be sold.
Is my business consistently able to cover operating costs from sales revenue? -This should be a no brainer. If you aren't making enough from sales revenue to recover operating costs, it may not be time to sell yet.
Does my business have staff or management in place to help the new owner in transition after the sale? Are you heading straight to the Bahamas after the sale? -Buyers are a lot more comfortable when there is employees and staff in place that can assist with the transition once the sale is final. Also, knowing that the past owner is close by keeps a Buyer comfortable. The last thing a Buyer wants is to be “left in the cold” after a transaction.
Am I a key part of the success of this business? -Businesses that rely solely on the skills and expertise of the Seller is an almost impossible sell. If what you do is very specialized, it can be hard to find a Buyer to fill your shoes.
Does my business have a longstanding customer base? -A Buyer feels much more comfortable when your customer base has been with you for a long time. This won't particularly apply to every single industry.
What is my customer concentration like? -Customer concentration is important to the Buyer. If 99% of your sales revenue comes from one customer, that can make a Buyer think twice about purchasing your business.