Why would anyone buy a business to work 60 hours a week at $16/hour?

September 2021

Why would anyone buy a business to work 60 hours a week at $16/hour?

I asked a business owner that question after she said her business should be worth $150,000 to a potential buyer.  She believed that, even though she had to work non-stop for a meager wage just to keep her business alive.  She thought those results would be desirable to a buyer.  She was wrong.  A buyer isn’t going to see the image; a buyer is going to see the reality, and her reality didn’t look good.

You wonder: “Will I be able to sell my small business.  The key?  Understanding how a buyer will view your business.   

Are Your Results Desirable?

Small Business Owners Work Hard

Hard work is part of what it means to be a small business owner.  Sometimes it’s 18-hour days, 7 days a week.   No apologies.  No excuses.  If you’re not willing to do the work forget about buying a business.  Take pride in that work and in what you’ve built – but understand that the hard work doesn’t guarantee that you’ve created any value in the business – or that you will be able to sell it someday.

Studies show that only 30% of business listed on the open marketplace actually sell. 

The business owner assumes her years of sacrifice automatically created value.  She had a real business that included revenue, expenses, equipment, employees and a list of customers.  She had all the parts, but the parts didn’t combine to create results that were going to attract a buyer.

What Do We Mean by Desirable?

No trick.  We simply mean desirable. You need to have results that someone else will want.  Results that are attractive.  Results that make a buyer say, “I wish this was my business.”

Too often business owners believe there’s some secret value equation sought by business buyers.  She wanted to leave her business because the work was too hard, and the pay too low – but she still believed that someone would want to buy what she called her “boat anchor.”

No one wants to buy your pain.  If you want to be able to sell your business, your results must be desirable.

Two areas matter when it comes to the desirability of your results.

Increase Your Seller’s Discretionary Earnings (SDE)

SDE is the financial benefit of being the full time, owner operator of your business.  (If you don’t understand what SDE is, let’s talk.  It’s a critical concept.)

Do you produce SDE of $50,000, $90,000, or $250,000 per year?  More is better and make’s your business easier to sell.

SDE is your key result.  Raising your SDE is the single best way to improve your odds of selling your business.  Nothing else comes close.

Improve Your Job

What does it mean to be the owner of your business?  Will a buyer want to fill your shoes after learning what you do on an average day?

Do you have a good job?  Do you have independence, flexibility, enjoyable work, benefits or any of the many other things that make a job “good” by objective standards?  Or do you have to work 14 hours a day, in horrible conditions to produce a meager profit?

You are the small business owner.  We understand that sometimes you have to do unpleasant tasks.  But if your job becomes unbearable, you have to understand that no one else will want to do it – let alone pay you for the opportunity to do it.  The more attractive your job is, the more desirable your results are.

These Two Things

Look at your SDE and your Job.  When you combine them do they create results that a buyer would want?  Can someone look at these two results of your business and say, “I want that life”?

Take an unforgiving look at your business – are the results it produces desirable?

If you can improve these two measures, you will dramatically improve your ability to sell your business.