In the United States, small businesses make up 99.9% of all private employers. Yet half fail within five years. Many survivors run into a wall when the owner tries to step away.
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10 Signs a Business for Sale Is Actually a Good Business
What makes a business worth buying? Here are 10 signs of a fundamentally strong small business, including cash flow, customers, employees and systems.
1. Consistent Cash Flow
Consistency reduces risk.
2. Repeat Customers
Customers who return are valuable.
3. Strong Employees
Good employees make the transition easier.
4. Low Owner Dependence
The business shouldn’t collapse when the owner leaves.
5. Good Reputation
A strong reputation is an asset.
6. Diversified Customers
No single customer should control your destiny.
7. Good Suppliers
Stable suppliers protect margins and operations.
8. Reasonable Capital Requirements
You don’t want every year’s profits going into new equipment.
9. Documented Processes
Systems make businesses transferable.
10. Opportunities for Improvement
A good business with fixable weaknesses can be a great acquisition.
Working Capital Peg Example (With Real Numbers) – A Case Study
One thing that kills large deals is working capital PEGs don’t get addressed early by the broker and the parties. Small business owners often run their business with little to no understanding that if they sell to a private equity group of a more sophisticated buyer they will look for the working capital to be given to them in the sale. Here is an example of the way it works.
The “Working Capital” Peg: How Cash and Inventory Are Negotiated at Closing—and How Sellers Can Improve It to Their Advantage
By Michael Shea, Transworld Business Advisors of Tampa Many business owners focus almost exclusively on sale price. But seasoned sellers know that working capital—how much cash, inventory, and short-term assets stay in the business at closing—can quietly swing deal economics by hundreds of thousands of dollars. In lower middle market transactions especially, the working capital […]
M&A Advisors vs. Main Street Brokers: Choosing the Right Representation for a $500K Business—or a $10M One
Not all business sales are the same. A company valued at $500,000 requires a very different approach than one worth $10 million. Yet many owners don’t realize there are fundamentally different skill sets, buyer pools, and processes involved.