Overcoming Declining Revenue Trends When Selling a Business
The decision to finally sell the business is just the beginning of the sale process. While it is common for business owners to feel emotionally fatigued and ready to move on by the time the business is up for sale, it is important that they stay engaged during the entire sale process and not turn away from the day-to-day operations of the business.
Why? The tell-tale declining revenue trend is a lurking danger that usually strikes when the owner is not looking.
In order to get the best price possible for the business stay in growth mode, not retirement mode. Don’t let the business slip or fade. Keep normal hours, maintain inventory levels, and continue marketing efforts as usual until the business is sold.
If, however, an owner is in the circumstance of having to sell at a time when sales have been waning, a well-defined explanation of the reasons for the declining revenue trend may mitigate the impact on the ultimate price paid for the business.
The following are things that can be done to showcase the positives, overcome the negatives, and increase the probability of achieving the sale of a downward trending business.
Target buyers that have the skill set needed to turn the business around.
A downward trend will probably not scare away the right kind of buyers. If there is a skill set that the current owner is lacking, a new owner that possesses these attributes could potentially improve the prospects of the company. Perhaps an operator with a strong marketing background or one that is more technologically inclined would be a great benefit. If this is the case, then these characteristics should be identified. A buyer who reasonably believes that they can turn things around by injecting a new skill into the operation may be an excellent candidate to purchase a declining business.
Emphasize the benefits of having a full-time, focused owner.
Many business owners have lost their mojo and have been operating the business part-time with no efforts to increase sales. This often results in growth opportunities that are like low hanging fruit waiting to be harvested by the committed, energetic new owner. Clearly describe the potential that exists under the full-time attention of a hands-on owner.
Formulate a Growth Plan.
The greater the growth potential that exists in a business, the better the chance for its successful sale. A main motivation for buyers in acquiring a business is the opportunity to grow it beyond its current size. Therefore, when an owner can articulate specific areas for growth and detail how each growth initiative can be achieved, a buyer will begin to understand potential that he may have not considered and gain confidence in the viability of the company’s future. This growth plan would serve as a template for discussion during initial buyer meetings. It would cohesively paint the larger picture of the business and dispel elements of risk. Some areas to consider in developing a growth plan are described in the complete article, “Growth Potential is a Factor When Selling a Business.”
Address the concerns that buyers will have about declining revenue with potential solutions.
Buyers usually dig deep to get at the causes for a downward trend in sales. This is a go or no-go issue for them. A valid reason for the decline must be explained and potential corrective measures should be outlined. Make the case about where the business is today, where it could be in the future and how it holds up in relation to its competitors. The objective here is to help the buyer understand the nuances of the business and its preparedness for the future.
Be open to the possibility of an earnout.
An earnout is an arrangement in which the buyer doesn’t pay the entire purchase price up front but agrees to pay a certain amount now and more later depending on how well the business performs over a definitive time period. This may be a particularly appropriate solution when a business is experiencing a recession-caused or otherwise diagnosed dip, and is likely to strengthen once the economy improves or a new owner with appropriate skill sets takes over. An earnout can be a vehicle that bridges the gap between the buyer’s desire to pay what the business is worth based on today’s profitability, and the seller’s desire to be paid for its normal performance or for the resurgent profitability that the seller claims will soon occur.