Episode Summary
Ron and Deb sit down with Bob Latham, managing partner and principal at IBG's offices in Arizona and Texas. With over 30 years of experience in mergers and acquisitions, Bob discusses the critical factors that can make a business unsellable. He shares insights on the importance of diversified customer bases, clean financial records, and established management teams. Bob also elaborates on how company culture and leadership styles can impact the sale of a business. Whether you're a business owner considering selling your company or just interested in the M&A process, this episode is packed with valuable information to help you prepare and make informed decisions.
Building a business is a labor of love, a journey that often demands late nights, endless dedication, and an unwavering commitment. But what happens when the moment comes to step back, perhaps to retire or explore new ventures? Unfortunately, many business owners find themselves in a predicament where their business is unsellable. Transforming a business into a sellable asset requires strategic foresight, intentional leadership development, and proactive management.
Why Some Businesses Are Unsellable
A significant number of businesses are turned away from the selling process due to fundamental issues. Between 50% and 75% of potential sellers are advised to make changes before their business becomes an enticing opportunity for buyers. The three most common challenges are:
- Disorganized Financial Books
A business’s financials need to be in impeccable order. Buyers need to see clear, accurate accounts that align with standard accounting practices. Even with a great company culture and strong leadership, chaotic records can jeopardize a sale. Clean books are crucial in establishing trust and proving the business’s viability.
- Client Concentration
A red flag for potential buyers is a substantial percentage of revenue coming from a single client. Ideally, no single customer should represent more than 15% of revenue. This diversification reduces risk and enhances long-term stability, and helps teams strengthen client relationships across a broader base.
- Over-dependence on the Owner
If the business relies heavily on the owner’s presence, even the best financials can’t guarantee a successful sale. An owner who can’t take a vacation without the business faltering signals a potential leadership gap. Cultivating a management team—through executive coaching and targeted leadership development—that can operate independently is imperative for long-term success.
Strategies for Transforming Your Company Culture
Addressing these elements not only makes a business more enjoyable to operate but also enhances its market value. Latham shares success stories where through strategic improvements, businesses have seen their market value soar significantly. One notable instance led to a sixfold increase, showcasing the powerful impact of refining leadership skills, solving internal communication problems, and strengthening company culture.
Preparing Your Business for Sale
As a business owner, planning 1–3 years before you consider selling is crucial. Proactively enhancing your financials, customer base, and management structure will safeguard a more profitable exit. These improvements—especially when paired with executive coaching and leadership training courses—can double or even triple the potential value of a business.
To achieve this, enlisting the help of industry professionals for assessments and strategic planning is recommended. A marketability assessment can reveal weak points, including leadership gaps and communication problems, and guide preparations for a successful sale.
Bob’s Takeaways
In the world of business sales, aligning the business’s readiness with favorable market conditions and personal readiness is key. As Bob articulates, the right time to sell is when the business, market, and owner are simultaneously ready. By taking these steps, business owners can ensure they’re not left with probate decisions but instead sell under their own terms for maximum value.
For those aiming to restructure their business for a future sale, professional guidance can transform your ownership journey into not only a fulfilling endeavor but a lucrative outcome. Prepare early, strengthen your leadership, solve communication problems, and when the moment’s right, let your business become the well-earned asset it is meant to be.
To connect with Bob, or seek IBG’s services, visit IBG’s website.
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