Whether you are looking to sell your business soon or in twenty years, knowing its sellability score can help you maximize its value and exit with the best return on your investment.
But what's the sellability score, and why does it matter to you? Let's find out what the score means and the strategies to boost the metric as you prepare for the grand exit.
When the right time comes for the exit, you can work with us at Exitwise to recruit your dream M&A team of business brokers, wealth advisors, tax accountants, and business attorneys.
Besides helping you understand your sellability score report, these experts can smoothen the process of selling your business.
Talk to our M&A advisor today about forming the best M&A team to maximize your exit.
The sellability score is a numeric rating that shows a business owner how hard or easy it is to sell their business based on its potential value and attractiveness to prospective buyers.
The score was developed by John Warrillow, a best-selling business author and the host of the Built to Sell Radio podcasts, as part of the ValueBuilder System.
Also called the Warrillow Sellability Scale, the score rates your business between 1 and 100 after you complete an online survey.
Besides getting an instant sellability score for free, you also get a detailed 26-page report with graphs and charts showing you how potential acquirers evaluate your business.
Here's what the report shows alongside the score:
As a business owner with an exit in mind someday, you'll want to know the marketability of your business for the following reasons:
The detailed report shows you where to improve your company to make it more attractive to potential acquirers. These improvements can come from within your company or based on industry standards you are yet to meet.
The added value places your business in a better position for future success, which attracts new buyers and increases the chances of getting a higher purchase price.
Keeping tabs on your business’s sellability rating can help you to always focus on exit planning, even as you run the business. You never know when you might receive an unsolicited offer or need to sell your company for some reason. You'll want to be ready when the time comes.
The score helps clarify your net worth, which should be fairly separated from your business.
If most of your net worth is tied to your company and you don't know how much it's worth, then your net worth is unclear. Getting your company's financial health report will shed light on your own financial health.
Knowing your business’s sellability scale helps you realistically understand its potential value so you can negotiate confidently during the sale process. You don't want to overprice the business and scare away potential investors.
To determine the sellability score of your business, the online survey you fill out considers eight elements, as discussed below:
The sellability score algorithm measures your financial health using your financial history based on how you generate revenue and profits. It also considers how professionally and consistently you prepare your books.
Most buyers consider your business’s financial performance and health first, so you must always have accurate financial records to increase their confidence in the business's ability to offer them good returns on their investment.
Prospective business buyers can easily see how much growth potential your business has based on its financials. Can your business expand into new geographical markets? Can you add more customers from the existing markets?
Most buyers want to see the rate of growth they could expect from your business through regular efforts without over-investing their resources immediately.
Every buyer you find wants to know how well your company differentiates itself from its competitors.
A greater advantage means you can organically set the standards or define the industry's rules, making your business more valuable to buyers.
It's important to show potential buyers that your business can finance its operations and growth from its own cash flow with little to no need for external finances.
Buyers are willing to pay more for companies that rely less on outside finances and less for those that cannot afford to borrow.
You'll want your customers to be happy with your goods and services to the point that they can gladly refer you to other potential customers.
Happy customers can bring in more recurring income, raising the attractiveness of your business to buyers.
Based on the Swiss notion of self-sufficiency and neutrality, this element refers to diversifying options and reducing dependency on a singular vendor, employee, or customer.
Such dependency puts you at risk if a stakeholder pulls out, making your business less desirable to buyers.
If you have lots of recurring revenue from long-term contracts or subscriptions, buyers will like your business more because they are guaranteed some income if all other factors remain constant.
It's risky if your business depends heavily on you to run successfully. Buyers want to see businesses that can perform well even if the owner was incapacitated for a long time.
To mitigate this risk, ensure you have turnkey employees who can increase the confidence of prospective buyers.
The sellability score is calculated using an algorithm that considers several variables regarding your business’s financial, market, and operational conditions.
To determine the score, the algorithm assesses your business thoroughly based on your responses to the online survey or questionnaire for the eight components above.
Additionally, the algorithm also considers your business's unique characteristics to ensure the resulting score and report are better suited to your specific situation.
Here's how to improve the sellability rating of your business:
At Exitwise, we can help you hire and manage the best industry-specific team of M&A experts to ensure you increase the value of your business and sell at the most favorable price. Consult with our M&A advisor today.
Let's check out some questions regarding business sellability scores:
An approximate 80% sellability score is ideal as it shows your business is highly attractive and easy to sell to prospective buyers at a higher purchase price.
Assessing your sellability score should be a continuous process because improving sellability takes months or years.
If you plan on exiting your business in a few years, you can assess the score every month. Business owners looking to exit in five years or more can evaluate their score after every 3-4 months.
Yes. Industries such as pharmaceuticals, technology, healthcare, and capital-intensive manufacturing naturally have higher sellability scores.
You shouldn’t determine your business's sellability score only when you want to sell your company immediately. It's advisable to keep tabs on the score all the time once you have your eyes set on a successful exit in the coming years or decades.
However, if you want to exit your business sooner, you can hire an M&A team to not only help you determine and understand your sellability score but also sell your business successfully.
Reach out to us at Exitwise to create the successful exit you deserve with an M&A team we’ll help you hire and manage.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.
