Though happily married for almost 33 years, I have some memories of my experiences dating. I once had a friend say “I have somebody you should meet” to which I said, “well, tell me about her.” The response was “she has potential.” I politely declined.
Potential is a terrible word to use when describing a potential date, and it’s a terrible word to describe why someone should buy your business. When a business owner tells me “this business has potential,” I have the same reaction as when someone would tell me about a girl with potential. I believe “potential” is what you say when you don’t have something better to say. If your selling message is “this business has potential,” you are really saying, “I think this business could grow, I just don’t know how.”
To optimize your business valuation, don’t talk about your potential, but instead talk specifically about what you have done to grow your business. You need to be able to say it like this: I did this, and then this happened. I call it the “if that, then this” rule. A business with a fact-based formula for growth {if you do that, then this will happen} will get a higher multiple, which is another way of saying the business will sell for more.
This is one reason I encourage business owners to seek the advice of a competent consultant well before putting the business on the market. In most cases, a business owner needs time to define their “if that, then this” formula. Trying to figure this out while marketing the business for sale usually ends up as some vague notion of “potential”, which is a turn-off to a knowledgeable buyer.
When I write a marketing package for a client company, I will include a section called Growth Opportunities, but it will only include specific ideas with specific plans. That way a prospective buyer has tangible, real ideas for how the business can grow. I describe the growth plan from the framework of “if that, then this.” Looking at a business from this perspective helps the prospective buyer evaluate their potential return-on-investment, which is the real message they need to hear when evaluating your business.
So, when selling your business, eliminate the word “potential” from your vocabulary. Focus on the specifics of your growth plan … your wallet will thank you at closing.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business.
https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.
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