Why your unbeatable reputation will hurt you when selling your business
“I never advertise, and we’re always busy”.
A proud and common catch cry I hear from marine industry owners when discussing their business. Unfortunately, when the owner wants to retire or exit the company, this reputation results in a much lower market value of their business.
Hi, My name is Mick Godwin and I sell businesses; I specialise in marine-related companies looking to buy, sell, acquire and merge. Some industries are very fast-moving, with sales, mergers and acquisitions occurring frequently. However, that is not the case in the marine industry. Those who have been fortunate enough to have made a living in, on, or around the water are notorious for operating businesses that are far from what we call ‘sale-ready’. The importance of your business is not just based on its ability to pay your monthly bills; its service to you should also be its level of commercial goodwill.
The term goodwill is generally misused or misunderstood. I’ve even seen accountants add goodwill to the assets of a balance sheet. Attaching an in-tangible number in a ‘tangible’s only section’ hardly allows for an accurate, up to date snapshot of your business’s position.
Yes, goodwill allows for a value representation for in-tangible assets, but that’s too simple an understanding for a business owner to have if they want to sell their business for top dollar. Goodwill comes in three forms;
Some businesses enjoy a mix of all three, and some can depend on just one or none. Commercial goodwill is by far the most valuable, think notable brands; Mcdonalds, Riveria and Toyota. Locational goodwill can still be valuable, but it does not have the leverage of commercial goodwill. Think of the BP at Stapylton on the M1, between Brisbane and the Gold Coast. The location of this service station contributes far more value to the business than its ability to upsell each driver with a coffee. That location would probably drive just as much business to the owners as it would if it was a Shell, Mobil or Ampol service station.
The problem with locational goodwill is that revenue generated at that location is fixed to that location. Personal goodwill is by far the hardest to sell, and in the case of many business owners I talk to, even detrimental. The diminished market value is because the business’s future success is too reliant on the owner’s network and reputation.
If it is evident that your reputation has been responsible for a large portion of the company, then the business’s future ability to generate revenue is severely affected once you leave. As a result, this scenario reduces the market value of your business.
In the marine industry, we like to stick together with our bonding of boats and the sea. So it’s understandable; that many of us have been able to make a quid without giving too much attention (and money) to marketers, advertisers, and systems. But, to be very clear, this will be your downfall and cause a terrible shock when you finally come to the point of selling.
I specialise in preparing and selling businesses in both marine and non-marine related industries.
Sales readiness is not just an exercise you should do when preparing to sell. It should be a constant review exercise so your business is sale ready for when you aren’t planning to sell, because life doesn’t usually deliver perfect timing, despite our best planning. Sales readiness can take anywhere between three to twenty-four months, depending on what we need to do. And in case you were wondering, this has nothing to do with increasing profits. When it is time to sell, add another three to six months for a business valued under two million dollars. Six to eighteen months for those valued up to five million. Remember, it is not the value you think your business is worth that matters; it’s the value the market thinks that matters.
If you wish to talk more about you and your company’s plans, then get in touch with me via the details below. I’m based right here on the Gold Coast, but I look after businesses right across the country because rarely your ‘best’ buyer is your neighbour.
For a confidential consultation, call 0416 638 154 or email your details directly to firstname.lastname@example.org