Selling your business can be simple. Recently I did a quick study to see what buyers would look for when they buy a business. Are we selling your business effectively?
I was curious if assumptions that we make as Business Brokers were true and what the impact would be if we had it wrong.
Another reason for the research was to show potential vendors how to step into the shoes of a buyer, ensuring they understand the aspects of business they could improve before selling the business.
I asked the respondents to score 6 topics from 1 to 10 with 1 being highly relevant and 10 being not relevant at all. Working with 1 to 10, oppose to 1 to 5, I could see the contrast between the topics, measuring the relevance of the topic compared to others. I know, this sounds really complicated!
The topics involved were:
- Profitability of a Business
- Geographical area
- Availability of accounts
- Current profile of the business (marketing)
- Current staff and Management in place
- The asking price of the business
You could do the exercise yourself to see if you are in line with my survey!
However, the result wasn’t surprising to me! Everybody scored a 1 or 2 (being really important) to have reliable accounts available (signed off by an accountant!). This suggests that if you don’t have up to date accounts at the time of sales you have virtually no chance of selling your business!
The scores also told us that there was a more than 20% difference (88% vs 68%) in having accounts available and the second most important topic; profitability of a business.
The respondents would score the profitability of a business with a 1 if the business they would buy should definitely have an above average profitability or a 10 if they would not care about the profitability because they were sure they had enough knowledge [of business or the industry] that they could grow the business themselves.
The Geographical area was quite important for the respondents. They would still prefer to be somewhere near one of the main centres (Auckland, Wellington, Christchurch). The group of respondents were all over the age of 45, which could indicate they preferred the traditional way of business, rather than running an online only business. I think, within 10 years this will be viewed completely different with more people wanting to shift online and out of the cities.
For the respondents it was also very important to have a good management structure and staff in place.
I would have expected that the asking price would be more important. The respondents would score a 1 if they agreed they would not pay more than the market valuation and a 10 if they would pay a Premium price if there was sufficient evidence of potential and growth opportunities. The majority would consider to pay more than market value if there is enough evidence of industry growth and growth potential in general.
As expected, the Profile of the business was the least important, indicating that there was a difference in view on what a high profile was; being known in the industry (most likely through advertising and smart marketing campaigns). This could be franchises that run national advertising campaigns etc.
This was most likely also influenced because this group of respondents were established business owners of small businesses and non of them were owners of a franchised business model.
When asked if this particular group would consider a franchise, 75% said they would not consider a franchised business at all, 25% would consider it, depending on the industry the franchise would operate in.
I would have thought that maybe they felt lost or lonely in small business and being part of a franchise system could increase their sense of belonging), but none of the respondents would ever change to a franchise system or, in hindsight, would have done so before they started their current business venture.
Some of the reasons were;
- more flexibility being in business by yourself
- full control of their own destination
- having the freedom to experiment
- having less rules to comply with
A couple of remarks were around the concept of franchising as a concept, including;
- Lack of support (that was promised) from some franchises
- Too many franchises were poorly constructed and creaming profits with little regard of how the franchisees were doing
- Benefits don’t weigh up to the constraints of the franchise system
- Easier to sell the business without franchisor approval needed
Take your own conclusion from this short study. Personally, for a starting business owner a franchise business could be the perfect way to start your business career; the fail rate of franchised businesses (overall) is considerately lower. Ensure you fit the culture and that you share the views of where the franchisor wants to grow to. Sometimes, pushing your own dreams is far more important than realising someone else’s future.
Do you want to know more about franchise VS non franchised businesses? Contact us today. We never charge for our advice and we can identify the right business for you, whether it is in Whangarei, Northland or Auckland.