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The Value of a Sellability Score

by Basil Peters on January 28, 2013 · 2 comments

The Sellability Score was created by my friend John Warrillow who also wrote Built to Sell. If you are thinking about selling your business now, or at some point in the future, the Sellability Score will be valuable to you.

A Sellability Score is an external, unbiased evaluation of your business’s worth on the open market, calculated by grading your company against eight key factors. These factors include:

Financial Performance – Gauging a business’s profitability is perhaps the most well-known valuation method. Basing a sale price off of an evaluation of financial performance alone, however, can be a risky approach for both parties.

Growth Potential – Like every great investment, businesses are not bought for what they are, but for what they can be. Realistic growth projections are essential for setting a sale price.

The Switzerland Factor – Over-reliance on one or a few clients, suppliers, and employees can negatively affect a business’s perceived ability to adapt to change.

The Valuation Teeter-Totter – The relationship between a business’s revenue and expenditures can be best understood through an analysis of the business’s cash flow cycle. There’s a big difference between trying to sell a business with a negative cash flow and a company with overflowing revenue.

The Hierarchy of Recurring Revenue – The degree to which a business’s revenue is recurring directly correlates to the business’s likelihood of sustained stability. A high degree of recurring revenue is an attractive attribute for a business to possess, though it is not a factor for all business models.

Monopoly Control – Businesses with highly differentiated products and services enjoy the luxury of not having to rely on pricing to remain competitive, and are thus, very desirable acquisitions.

Customer Satisfaction – Tracking and gauging the level of your customers’ satisfaction is a good policy under any circumstance, but can be an especially important as a selling point. Businesses with a large base of satisfied clientele are more likely to benefit from referrals and repeat business.

Hub & Spoke – Businesses that are overly reliant on the stewardship or talents of its owners can be viewed as a risky acquisition. The degree to which a business can successfully undergo an ownership transition has a significant impact on sale price and to whom you should be marketing your business.

A Sellability Score will let you know exactly where your business falls on each of these scales, as well as its overall “sellability” as an acquisition. Even if you’re not planning a sale in the foreseeable future, the insight garnered from a Sellability Score can help you identify and isolate weaknesses in your business model, better preparing you to successfully negotiate an optimum price when the time comes.

Get your Sellability Score here (it’s free). You will receive a 26 page report on the sellability of your business. I’d also appreciate hearing your comments on the Sellability Score as a comment below or by contacting me directly. Thanks.

{ 2 comments… read them below or add one }

Mike McLean February 6, 2013 at 9:57 am

Hi Basil

Great article. Has definitely got me thinking. I was recently brought in to a rapidly growing company to take it to the proverbial “next level”, acheive some financial goals they have defined, and ultimately sell the business. Probably a 5 year time frame is the assumption. Naively, I had thought/hoped that I could work hard at the growing-the-business part and the other stuff would take care of itself. This article, and other articles on your website, has opened my eyes to the fact that this is, at best, an approach that will not maximize value and is more likely an approach that will fail completely.

Regards,

Mike

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Basil Peters February 16, 2013 at 11:15 am

Hi Mike,

I’m glad that my content has been helpful in developing your exit strategy. Sounds like you are heading in the right direction now.

Please let me know if I can provide some specific help with your exit strategy, plan or execution.

All the best,

Basil

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