As small business owners we spend most of our time competing to build the better mousetrap or provide the better service. We become so focused on our customers and our competition that we lose sight of the most important thing to us as the owner, creating value so that we can one day sell the business. We know that the more value we create the more money a buyer will pay. But, do we really know how to create that value?
Value is determined by available cash flow and the risk associated with obtaining it. Simply meaning, buyers buy cash flow. The more you have, the more a buyer will pay.
Don’t get me wrong, buyers care about your product, service, market, reputation, etc. But how are they going to judge your product or service? How will they know that you have a great reputation? By how much cash flow you generate!
Everything that you do in your business should be with the expectation of generating cash flow and adding value to your business. I will challenge you that if an activity does not create cash flow (and value) then why are you doing it?
Not only is cash flow the best indication as to the quality of your product, service, reputation, etc., 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 won’t last very long. Business owners enjoy freedom but you can’t afford freedom if you don’t make enough money to feed your family, pay your bills and live the lifestyle that you want to live.
As a result, when a buyer evaluates your business for potential purchase they will evaluate it based on the cash flow it generates. An individual will want to understand if that cash flow is enough to support their lifestyle. An existing company will want to understand if the cash flow supports their investment and provides a viable platform for growth.
What does all this mean for you? When you sell your business you are not competing for buyers’ attention simply with businesses producing similar mousetraps or providing similar services. You are competing with every business seller in your local marketplace. You will win favor and attract buyers by having the most cash flow available for purchase.