NOT ALL APPLES LOOK THE SAME: HOW BUYERS LOOK AT YOUR BUSINESS

By Jim Kahrs

When buyers walk Into your orchard, what do they see?

You may not be planning to sell your business for another 10 years. That’s exactly why it’s worth looking at your business now. Imagine walking into an orchard looking for apples. There are hundreds of them hanging from the trees. Some are large. Some are small. Some look perfect from across the field. Others have a few blemishes.

If you’re picking apples for yourself, you might grab whatever looks good. But if you’re buying the entire orchard, you look at things differently. You’re not just interested in how many apples are hanging on the trees today. You want to know which trees consistently produce. How healthy the orchard is. What kind of care it requires. Whether the operation is dependent on one person. Whether the next harvest looks promising. And you’re going to pay closer attention to the apples you’re actually picking.

Business buyers think much the same way when they look at a business systems dealership. They aren't simply looking at revenue. They're looking at the quality of the business behind that revenue.

Buyers Are Looking for the Best Apples

A dealership can look successful on the surface and still leave a buyer with a long list of questions. How diversified is the customer base? How dependent is the business on the owner? How predictable is the recurring revenue? What does the service operation look like? How strong are customer relationships? How much of the business is tied to a particular customer, manufacturer, salesperson or key employee? Are there documented processes? Is there a capable management team?

What happens to profitability if the owner stops being involved every day? And perhaps most importantly: How much work is going to be required to keep this business producing after the buyer takes over?

That's the difference between looking at the orchard and actually evaluating the apples. A buyer isn't necessarily looking for the biggest dealership. They're looking for a business whose characteristics make the investment understandable, manageable, attractive and most importantly, a good fit.

You Don't Have to Always Think Like a Seller.

This is where dealership owners sometimes miss an important opportunity. You may be thinking: "I'm not selling anytime soon." Maybe you're 10 years away. Maybe it's 15. Maybe you haven't even decided whether you'll sell at all. That's fine. In fact, having time on your side may be one of your greatest advantages. Because building a more valuable business is very different from trying to make a business look more valuable six months before you want to sell it.

If you discover that too much of your revenue depends on you, you have time to change that. If your management structure needs strengthening, you have time to develop people. If your financial reporting doesn't tell the story a buyer needs to understand, you have time to improve it. If customer concentration is an issue, you have time to diversify. If recurring revenue could be stronger, you have time to build it. If your processes mostly exist inside your head, you have time to get them on paper and in full use. Ten years gives you a lot of time to grow better apples.

Don't Wait Until You’re Looking for a Buyer to Start Thinking Like One

The things that make a business attractive to a buyer aren't necessarily things you should do for the buyer. They're things that can make the business better for you while you own it. A dealership that doesn't depend entirely on its owner is usually easier to run. A dealership with strong recurring revenue is easier to manage. A dealership with good processes is easier to scale. A dealership with capable people is less vulnerable when someone leaves. A dealership with clean financial information gives its owner a better understanding of what's really happening inside the business.

Value building isn't just an exit strategy. It's good business. The potential sale is simply one way of measuring whether you've built something another business owner would want to acquire.

Take a Walk Through Your Own Orchard

Here's an interesting exercise. Forget for a moment that you're the owner. Imagine you're a potential buyer who has just been given access to your dealership for the first time. Walk around the business. Look at the customer base. Look at the financials. Look at the employees. Look at recurring revenue. Look at the service department. Look at the sales organization. 

Look at your contracts and agreements. Look at your systems and processes. Assume the viewpoint of an acquirer. Then ask yourself: Which apples would a buyer pick first? And just as importantly: Which apples would they leave on the tree?

You may discover that the answers aren't what you expected. That's not necessarily bad news. Actually, it could be some of the most useful information you can get. Because if you find the weaker apples today, you still have time to do something about them. You can prune. You can fertilize. You can plant. You can change how the orchard is managed. And you can give the strongest parts of the business room to grow.

Best Time to Build Value Is Before You Need It

Too many owners think about business value only when a sale of the business is  imminent. By then, the clock is running. 

A buyer is looking at the business as it exists, and the owner is trying to explain why certain weaknesses aren't really weaknesses or why they won't matter after the sale. That's a much harder conversation than simply having built a stronger business over time.

If you believe you might sell someday, don't wait until "someday" gets close. Start looking at your business now through the eyes of someone who might want to buy it. You don't have to put the business on the market. You don't have to tell anyone you're thinking about selling. You don't even have to decide whether you will sell. You simply need to understand what a potential buyer might see when they walk into your orchard.

Because 10 years from now, you may be ready to sell. And if you start building value today, you'll have spent those 10 years growing the kind of apples buyers are looking for.

Reach Jim Kahrs at jkahrs@prosperityplus.com or take a look at our value builder hub for more info.