Do you have an idea of what your business is worth in your head? Have you tried to raise money or sell your business recently and been surprised at the results? Sometimes it is hard to realize that a business that you have given your blood, sweat and tears to is not worth what you think to a potential buyer or to others who you have asked to invest. There are many reasons why this could be the case.
A fundamental reason that a business is sometimes turned down for purchase or investment is because of the lack of the owner to truly articulate the business and the value to others.
Do you have a business plan that outlines what products you sell or manufacture?
Have you been able to explain the size of that market you sell and what percentage of the market you have?
Who is your target market, and in what geographic regions do you sell your products?
Who are your competitors?
How do your competitors compare in size to your company?
What are your company and product differentiators? Do you have a product road map?
Have you made enhancements to keep the product current? Do you have plans to expand?
What profit has been made over the last five years on sales and is there an upward trend year over year?
Is the market you are selling into growing or is it in decline?
Are there other vertical markets that you could address?
What is the length of your sales cycle?
What sales channels are you currently using?
Have you considered expanding your channels?
What marketing mediums are you currently using to help sustain and grow your business?
Are you considering others?
Are your products easy to sell or do you need specialized training?
If something happened to you or any of your employees, would the business be sustainable, or is the business built around you or your development team?
These are just a few of the questions that an investor or a buyer is going to ask you and you need to be ready with an answer. Sometimes it is a harsh reality, but you must first put yourself in their shoes. If you were going to invest in a business or buy one, would you do so without knowing whether it was sustainable, transferable, or profitable? Your business is important to you, but an investor or buyer needs to see a return for their investment or purchase.
I enjoy watching the Dragon’s Den on CBC, as I find it interesting to watch how prepared or unrehearsed company owners are when presenting to a panel of potential investors. If you listen to the questions that the Dragons ask the owners and then watch the blank stares or the deflection they try – the harsh reality is that it takes more than being passionate about a business to be successful. When someone comes in with $0.00 in revenue and wants $250,000.00 in investment for 10% equity in their company and has not figured out that they are putting a value on their company of $2.5M, it is a hard lesson learned. What one also has to understand is that no one is going to invest in or buy a business they do not understand.
You should not be discouraged. Just because your business is not at a point to sell or receive an investment today, all is not lost. An excellent book to read one is by John Warrillow entitled “Built to Sell.” This book is an excellent read that tells the story of a man who owns his own advertising boutique business and his journey to make his business sell-able. Just because your business is not there today, does not mean you are not able to get there in the future. It is better to find out now and make the changes necessary versus wait until it is too late.
If you are interested in getting further investment or selling your business, you will want to find out if your current business is sustainable, transferable, and profitable.