Selling your Business – Financial Performance

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Let’s continue talking about exiting your business. Hi, this is Judi Otton with GrowthCast, and today we’re going to talk about financials. Now perhaps unsurprisingly, I’ve got a bit to say on this subject. So this is going to be part one of two. Today we’re gonna talk about financial performance. Now obviously if you’re going to sell your business, the more financially successful it is, the more than it’s worth. But there are some specific things that buyers look at. First of all, they’re going to want to look at year-over-year growth and they’re going to look at both top-line growth – revenue, and bottom-line growth typically expressed as EBITDA – earnings before interest, taxes, depreciation, and amortization. This is a fairly easy calculation, but this is typically how buyers look at businesses. They’re going to want to see year-over-year growth, and they’re going to go back quite a few years, perhaps as many as five or 10 years. Now, obviously, we’ve had a crazy couple of years, so if there is a blip or there is a loss year for years 2020 or 2021, that’s going to be explainable, you’re just gonna have to explain how the pandemic hit your business and don’t worry too much about that. The second thing that buyers are going to look at that, that makes a company really attractive is recurring revenue. Now, if you’re a business that works on a project or a transactional basis, meaning you do a project for a client and then they go away, think about what you could add to your business as a source of recurring revenue. Is there a way for you to offer a service contract or some sort of long-term support contract? Could you create a client community that’s members-only, something like that? Some sort of recurring revenue is very, very attractive. And finally, I want to talk about your long-term contracts. Things like leases, any long-term supplier contracts, long-term customer contracts, make sure those are all buttoned up and you have good contracts in place. Sometimes when we have long relationships with people and the contract expires we just say oh yeah let’s keep going without doing the actual paperwork. But if you’re getting ready to sell your business, get that paperwork done. It will help your business’s value down the line. I’ll be back next week with your latest Fiscal Fitness Tip of the Week and we’ll be talking about how your financials need to look until then this is Judi Otton with GrowthCast I’ll see you later. Bye.