7 things a business buyer will pay a premium for #4. Guaranteed income

July 10, 2011Post by Laura Humphreys

If you are serious about selling your business, one of the goals you should have clearly marked in your business plan is ‘locked in’ forward revenues.  This is money that is committed to the business for a reasonable period into the future.  Of course a buyer will look at your track record and your turnover and profits from previous years.  But what they really want to know is what money will the business make for them going forward.  What profits can they be certain of once they own the business?  They have to see their investment will pay off.  The best way to reassure them of this is to have income that is ‘locked in’… or as my dear old dad used to tell me:

“You gotta have a back end!” 

My dad had a photo copier business back in the seventies.  He sold it and retired in his early fifties.  He told me that the real beauty of his business was not the sale of the big machines up front (which was great for cashflow) but the fact that for every machine sold he also got a ten year contract to supply all the ink, paper and toner, as well as regular servicing for each customer.  No wonder he did so well when he sold his business.  The buyer could see ten years worth of guaranteed revenues, all signed into contracts.  Simple.  Yet brilliant.

When I sold my advertising agency several years later, a big attraction for the buyer was the fact that my key clients had signed three year contracts, agreeing to a set spend with the agency for every year of the contract.  The buyer could see the worth of the business they were buying in real terms, not just on projections based on past performance.

A key word here to remember and apply to your own business is ‘contract’.  Get your clients into a contract for future services.  Think of a way to make that attractive to them, based on value, guaranteed deliverables, exclusivitity, savings for them… whatever it takes (without compromising your margin too much) to get them to commit income to you for a number of years in advance.

Exercise for the day… what is your company’s ‘back end’?  How can you build guaranteed future income that would be attractive to a future buyer?