Rise in Business Acquisitions and Sales Provide Opportunities for Buyers and Sellers Alike.
The U.S. population is retiring quickly—family businesses are selling to new company owners instead of being passed down to the next generation who is unwilling to take over the family business. This contributes to the rising number of businesses that will be sold over the next 10-15 years. According to SCORE.org, 12 million businesses will be sold over this time period with that number continuing to increase in the future1. And BizBuySell reports that 2,448 businesses worth $1.9 billion were sold in the second quarter of 2024. This is 20% higher than the same time last year2. So, for business owners who are considering selling the business and aiming for proper valuation, now might be the time to do it to receive fair market value.
However, selling a business isn’t easy. Research indicates that only 20% to 30% of businesses that are put up for sale will actually sell2. If business owners hope to sell their business one day, there are important steps to take to enhance business value and make it attractive to potential buyers.
Loan Mantra provides tips for five ways to build, scale and get a business ready for sale:
Concept is Key. Brainstorm and write down all ideas you have concerning your business, no matter how simple. Then refine the concept and build a strong idea for an initial roadmap. Study possible competitors and learn from their successes and failures. Learn from similar sales and company mergers that resemble the business. Bounce concept ideas by family and friends first. Then, test the business’ concept through trial markets or focus groups. To do this, find a group of prospective buyers or current customers to review the functionality of your product/service. From there, use the feedback to make changes to any faults and highlight what the customers enjoyed about the product. This type of information share will be invaluable to your concept testing.
Focus on A Core Strength. Start out small and focus on doing a few things well rather than setting an unrealistic standard of trying to do everything. Focus on fine-tuning your specialties or the best aspect of your business on a smaller scale so it is easier to make adjustments before rolling out on a larger scale. Differentiate the business from competitors by highlighting unique selling propositions and value propositions. Cultivate strong customer relationships and brand loyalty to create goodwill that adds value to the business. Invest in marketing and branding efforts to enhance the company's visibility and reputation within the industry.
Streamline Process and Operations. After proving the concept, it is necessary to make sure that business processes are in place to run the operation. Document standardized procedures and create a playbook that outlines how the business operates, which will make it easier for future owners and partners to understand and replicate. Implement systems that can handle increased demand without proportional increases in costs. Use free resources online can be an advantage to provide free training and case studies on how others have completed tasks from YouTube videos and to free online courses to a simple and quick online search.
Diversify Revenue Streams. Once the core business is running smoothly, reduce dependency on a single product or customer by diversifying revenue streams. This can be done by introducing complementary products or services to broaden your customer base. Explore segments that align with the existing business model but offer opportunities for growth. Look at providing additional services like subscriptions or maintenance contracts to provide recurring revenue streams for additional financial stability and predictability. Rao’s sauce is a good example of this. Customers would stand waiting in a 2- and 1/2-hour line on Arthur Ave in New York, just to eat at his restaurant. He capitalized on the famous sauce recipe and decided to sell to retailers. Today the sauce can be found in Target, Whole Foods, and other grocery stores. His product became more accessible as demand grew so he moved through lifecycle of business and evolved with consumers’ preferences to make the product available on supermarket shelves.
Scale not to Fail. Human capital is one of the most important things in any business when scaling up. Building a strong management team to handle responsibilities and empower capable managers to handle day-to-day operations will help the business expand. A competent management team instills confidence in potential buyers about the business's ability to operate successfully under new ownership. Document key roles and responsibilities within the organization to ensure continuity post-sale. Foster a culture of accountability and professional development to attract and retain top talent. Offer to stay with the business as a consultant for a limited amount of time during the business transition to share institutional knowledge. Knowing that the original business owners will remain active for a period of time after the sale can instill confidence in the client base.
Max Financial Performance and Keep it Clean. How do you make yourself most attractive to exit the business or sell? Determine what is most attractive/ important to buyers in terms of assets (technology, real estate, people, name recognition and a well -established client base are just a few). Maximize your business’ financial performance by improving profitability, increasing margins and reducing unnecessary expenses. Ensure accurate financial reporting and maintain clean financial records for potential buyers. Put transaction into the books every week; reconcile your bank statements each month; review your financials once a quarter; and review financial records with a CPA or financial advisor annually. These steps will keep your books clean and up to date.
Demonstrate a history of strong financial performance and provide projections that highlight future growth potential. Anticipate that your buyer may need financing to complete the purchase which requires paperwork. For instance, to get a loan approved for the business buyers typically must provide 3 years of business tax returns and profit and loss statements from your records. Having these records available will streamline the sales process and make a smooth transition easier. A free account to house all of these documents is available at loanmantra.com.
By focusing on these strategies, you can build, scale and prepare your business for sale, ultimately maximizing its value and attracting potential buyers.
About Loan Mantra
Loan Mantra is a one-stop FinTech business portal that democratizes the loan process by providing corporate sized services and access to new entrepreneurs, small and medium sized businesses. Small business owners identify two obstacles to their success: access to capital and financial education. At Loan Mantra, we remove these hurdles. We believe borrowers of all sizes should have equitable access to the $5.4 trillion marketplace of SMB financial products, lenders, government programs, and services. How?
Our end-to-end portal, BLUE (“borrower lender underwriting environment”) is built on decision-tree logic, so borrowers answer questions in the manner they understand best and find the right financial products and lenders. With a few simple clicks, our users complete loan origination paperwork; upload documents; connect or communicate with financial partners; and manage their loan process--anytime and anywhere. Our best-in-class FinTech meets NIST v. 500 standards so borrowers can safely store their financial records, making it painless to acquire more capital if they need it down the road.
As a minority-owned business, Loan Mantra understands the challenges facing underserved borrowers. Our mantra? To improve the future of human entrepreneurship through best-in-class technology, financial literacy, and commitment to equitable market access. Reach out today at www.loanmantra.com.