Let’s continue with our blog series on the topic of “building a business you can sell”. Last time, we discussed ‘recurring revenue streams’. In this blog post, we will talk about Consistent Profitability. In addition to recurring revenue streams, buyers will value profitability. Buyers will value the bottom line. Profit is always a good business goal. But it is essential to establish a track record of consistent profits, year after year, right up to the time of sale.
Larry Reinharz, Managing Director of Woodbridge International states: “The number one reason our deals get delayed or don’t happen is declining financial performance.” He adds that in 80% of the cases, declining financial performance is the reason a successful sale is not completed and the deal is delayed or does not go through. (Page 61 of The Exit Strategy Handbook)
Why? Because consistency of profitability gives some assurance and comfort to the buyer that profits will continue to be steady and predictable. A pattern of profits that is volatile means more risk to a business buyer but a steady trending growth in profits means less risk to a buyer. If less risk is perceived by a buyer, then the buyer will have more confidence in making the purchase.