Hidden Treasure When Selling a Business

Most business owners understand some of the dynamics of selling their business but few understand the value drivers that create dollars for the purchase price.

Here are five “treasures” that may be found in well operated companies that are prepared to sell:

1. Customer Lists….This is probably the most valuable but overlooked asset of most businesses. Keep a customer list that is automated and accessible. Use one of the many CRM (Customer Relationship Management) programs to compile and manage the list of people and businesses with whom you regularly do business. It is, after all, this list that produces the SDE (Seller Discretionary Earnings) or “cash flow” that buyers want to buy and will pay for. We recently sold the customer list of a defunct, bankrupt company for $120,000.

2. Your employees…..nope, we haven’t gone back to slavery days, but it is critical that you plan for the sale of your business and your employees are a key component of any business sale. After all their efforts are what has created customer relationships and SDE for your company. Several tips about employees:

  • Get non-compete agreements from key employees.
  • If obtaining non-competes from key employees isn’t practical then consider setting up a retention bonus program shared with the new buyer. If the employee stays with the business for an agreed upon period of time then a bonus will be paid.
  • Manage revealing your intention to sell your business very carefully because employees often become very nervous and may seek other employment, cutting into the value of your company.

3. Exclusive agreements/contracts….If you have written, exclusive agreements with underwriters and/or customers these add tremendous value to your company.

4. Assumable lease(s) for premises on reasonable terms….moving a business is often the “kiss of death” for it because customers and clients may lose contact in the shuffle. Landlords can become a bit greedy when they smell new ownership coming so lock down leases as much as possible.

5. Last, but not least….Life Insurance policies may be a cash asset of a business. If the owner has a key man policy, either whole life or term, that policy may be sold for some percentage of “face value” as opposed to “cash value.” Most life insurance policies don’t have much cash value because so many people made the decision to switch to term policies. Few are aware that there are companies that will buy the policy, pay a percentage of the face value and hold on to the policy until the insured dies and then collect. They are figuring the odds but the cash may be more important to you, the owner.

These are just a few of the “Hidden Treasures” that may be part of the overall value of your business. Don’t overlook them at the biggest liquidity event of your business career, the sale of your company.