Think of the bottom line cash flow of your business as the first introduction to a prospective buyer. If that bottom line is not attractive, buyers will look elsewhere. The right strategy towards achieving a successful sale is to pin your bets on improving cash flow to stand out in the marketplace when it comes time to sell.

WORKING IN THE BUSINESS VS WORKING ON THE BUSINESS

Most small business owners spend their time trying to beat their competition by building the latest and greatest gadgets or providing the best customer service. They can become so focused in the daily details of working in the business that they lose sight of the end game. The most important thing an owner can build is value so they can one day sell the business. The more value created the more money a buyer will pay. So, how do you create that value?

Value is determined by available cash flow and the risks associated with obtaining it. Yes, the other aspects of the business that drive value, such as product, service, market, and growth potential matter too. But how will buyers judge those aspects? How will they ultimately gain perspective of all the virtues of the business? The main component will be how much cash flow it generates.

CASH FLOW IS THE BEST INDICATION AS TO THE QUALITY OF A BUSINESS

Not only is cash flow the best indication as to the quality of a business and its market, it is the single greatest reason that people go into business for themselves. It’s great to love what you do but if you can’t make money doing it, you can’t make a living. Prospective buyers will evaluate a business for potential purchase based on the cash flow it generates, whether it be an individual looking for enough cash flow to support their lifestyle or a company looking for a strategic purchase that offers quick expansion and a good return on their investment.