What makes a business appealing to buyers? Obviously, a consistently profitable business is the most appealing. However, a business that is consistently profitable, but sees its’ revenue stream concentrated in one area, can send up red flags to potential buyers.
In our experience in working with potential sellers, The Business Brokers, Inc. has seen many kinds of small businesses and a variety of revenue distribution models. Business owners can feel very good about the success of their business because they can show a consistent performance of profitability. However, sellers get a little defensive when we point out that their business may not be as appealing as they would like because 80% or more of their revenues are concentrated with one client. If that “one client” were to go away, so do the profits.
As businesses evolve, it is extremely important to keep the following thoughts in mind:
- Don’t put all of your eggs in one basket. When market share becomes too concentrated, develop a plan to diversify and broaden base.
- Diversify your revenue streams. Seek out and develop new and varied product lines / services.
- Continuously cultivate and recruit a broad customer base.
Business owners who spread their profits across a broad market and provide a variety of products and services will be much more appealing to potential buyers when it comes time for them to transition to new ownership.