Can You Sell Your Small/Home-Based Business? | Sales & Marketing from AllBusiness.com
Facebook Twitter You Tube RSS Feed

Can You Sell Your Small/Home-Based Business?

Some businesses, quite simply, are purely based on the person. The business IS the person. For example, many small consultants are based on the narrowly focused expertise...

By:  | AllBusiness.com | 
2007-11-14
Print Print
More
The value of a business depends mainly on the earnings it produces, with the expectation that those earnings will continue into the future.  It also depends on having something valuable to sell that allows those earnings to be produced.  So if you have a small/home business, the questions you must ask yourself are:

Can a qualified person walk into my business, take over, and earn the same amount that I do? 

Some businesses, quite simply, are purely based on the person.  The business IS the person.  For example, in most cases an author can't expect to sell their business of writing books.  Many small consultants are based on the narrowly focused expertise and experience of the consultant.  Without the consultant, the business is not worth anything.  But there are many home businesses that have worked out a formula or process that is indeed transferable and valuable.  If you can teach a new owner how to take over and earn the money you have been earning, it is likely worth something.
 
What are the qualifications to run the business, and can I reasonably expect to find a buyer with those qualifications?

Sometimes the business is valuable, but only to a select few people, and it can be a challenge to find them.  For example I'm selling a flight school right now that owns three airplanes.  The only way a person could make this work is to be a flight instructor, because there isn't enough money to be made to just sit back and manage the business.   This narrows the universe of possible buyers, and I have to look in the right places for a buyer. 

Do you really have something to sell?

Some home businesses are based on a formula or process that is easily obtainable.  In other words, someone else can easily start such a business without having to buy it.  There must be some "barrier to entry", that prevents others from doing the business without paying you for it.  However many small business owners know more than they think they do.  I've met some that believe their business isn't worth anything because someone else could "probably" just start up a similar company.  Often someone else can not, or at least not without substantial risk.    That is exactly why people buy businesses - to minimize the risk of starting one.  Items that minimize risk, and therefore are of value are:

  • Ongoing and sustainable repeat customers
  • Goodwill built up in the name of the business
  • A process or formula that isn't easily reproduced
  • Work-in-process or a "book of business" that decreases barrier to entry

The good news is that most home based businesses are re-locatable, so anyone, anywhere can purchase it.  That is a big plus, and in fact many of the business-for-sale websites like bizben.com, bizquest.com and bizbuysell.com allow you to search for re-locatable businesses.

Unfortunately the multiple of earnings for really small businesses is fairly low, probably averaging 2 times.  That is because many amount to "buying a job", and the value of one job (no or little extra money for savings) isn't worth as much as a company that throws off enough money for a salary AND savings.


 
Blogger Home Page | AllBusiness Bloggers | Become a Blogger

Recent AllBusiness Blog Posts

  • M&A Match-Making Websites

    In the last post I covered business-for-sale websites, which are fairly simple listings of businesses for sale, typically smaller businesses. For larger deals there are a few websites that go beyond a listing service, and they provide more powerful tools for sorting and searching to find the right buyer and the right seller.

  • The Bipolar Middle Market M&A Space

    The past nine months has been an interesting ride in middle market M&A. Fine, seemingly solid companies with soft financials get little activity, while companies with strong financials get more offers (30 or more!) than a few years ago. This will change (and in fact already shows signs of change), and I will be glad when it does.

  • Lower Middle Market M&A Activity Heats Up

    The easy financing required to enable highly leveraged deals has disappeared, and business buyers are setting their sights lower and lower in the middle market in order to put their money to work.

  • Cash vs. Accrual and Business Valuation - Revisited

    ... Look at it this way. If the buyer were to buy based on cash accounting, he could immediately turn around and sell the business based on accrual accounting and pocket a profit without adding any value at all. M&A arbitration.

  • Preparing a Business for the Sales Process

    The new year is a good time to come to market and to take advantage of this we’ve been preparing a number of companies that we will launch this month. What do we do to prepare? What does a business owner have to do?

New On AllBusiness