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Dealing with Problems in Your Business
By Mark Daoust
Very few businesses can make a claim to being perfect and without flaws. Having problem areas in your business is not something that necessarily will prevent you from finding a buyer who wants to acquire your website, but failing to deal with those problems in the correct manner certainly can cause problems.
Properly identifying, addressing, and disclosing your problems can make the difference between wasting your time trying to find a buyer and actually finding a buyer who will pay you for your business.
Learn How to Identify Problem Areas
For many business owners, this is a difficult exercise to engage in. Because you run your business on a daily basis, risks do not seem to loom as large. You are used to your business succeeding. Even though you may see that some risks could exist, they don’t really seem to be real risks.
But for the buyer who will pay you a multiple of your annual earnings, risks loom large. They don’t have the experience you do in running your business, and as such, every potential risk looms as an axe ready to kill the business at a moments notice. Because of this, you should try to approach your business as someone who does not have any knowledge of your business and identify what may be perceived as risks.
As a part of our standard valuation process we work to identify risks that buyers will identify. Often times the risks that will trip up a buyer are the ones that you hadn’t even considered.
Outside of a consultation, you can identify risk areas by answering the following questions or exercises:
- Do a S.W.O.T. analysis on your company. Be thorough with it and be honest. Pay attention closely to the weaknesses and threats category.
- Look for areas where you have single points of failure. Do you rely on just one vendor? Do you overly rely on one or a handful of customers for your sales?
- Is your business exposed to any legal changes in your industry?
- Are the margins in your industry shrinking due to competition?
- Is your service or core product at risk of becoming irrelevant?
- Have you dealt with legal issues in the past?
- Is your traffic well diversified?
How to Handle Trouble Areas
Once you have identified potential risks (or at least items that may be perceived as risks by a buyer), you need to determine how to best deal with them.
The first question to answer is whether or not the risk can be eliminated. For example, if you are planning to sell your site 1 year from now and you have identified that your site relies only on Google rankings, you could spend the year building up an email drip campaign as well as establishing a PPC campaign to support the organic traffic. If you are currently relying on just one vendor, you can do research on backup vendors and their requirements. You do not need to use them, just have information for a buyer so they know that it is not a real risk.
Whenever possible, eliminating the risk is your best option.
But not all risks can be eliminated. For those that cannot be eliminated, you need to determine how it can be mitigated. If it is not really a significant risk, answer the question of “why” we saw this in the e-cig industry for a time. A lot of people were approaching us to sell when the legal grounds for these businesses was shaky at best. Many of these sellers tried to explain why the legal issues were not an actual concern and why the industry was safe.
When a buyer is evaluating a potential business to acquire, they will always seek out risks and worst-case scenarios whether or not those worst case scenarios are actually realistic. Mitigating your risks involves demonstrating why the perceived risks are smaller than they may initially appear.
Simply Disclose Them
There are some risks that simply exist and there is no mitigating them or eliminating them. In these cases, your only option is to disclose them honestly and in an upfront manner. We have learned over the years that there are buyers for risky businesses so long as they can properly measure and evaluate the risk.
Years ago we took on a client who sold a product that was easily confused with a product that is illegal. The concern buyers had was that some of the business’s clients were being ‘duped’ into buying the product thinking it was illegal. In order to address this concern, we simply disclosed the confusion upfront, noted that there were likely some customers that made this mistake, but then pointed to the high re-order rate as evidence that this was not the core customer base (customers who mistakenly ordered this product would find out shortly after that it was not what they thought it was).
The risk was still present as the business was confused with more shady businesses, but by disclosing upfront, buyers could make the determination for themselves whether that risk was worth taking on. Most backed out, but many did not.
Worst Case Scenario: Surprises
There is no mistaking the amount of fraud that exists in this industry. We have seen sellers who have directly forged documents. We have seen sellers who receive their funds and then disappear. We have seen sellers who simply are unaware of their own business who don’t see (and therefore don’t disclose) the many problems that lie underneath.
The problem is, buyers have seen this as well, and because of this, buyers are naturally skeptical. That is why upfront disclosure with buyers is always the best approach. The worst course of action is to hope the buyer doesn’t find or discover that dark area of your business. The fact is, most buyers can handle some level of risk if they know about it upfront. But, conversely, most buyers will walk away if that risk is a surprise to them after evaluating the information you present.
Be upfront with your risks and problem areas. Identify them, eliminate what you can, mitigate what you can’t, and disclose what is real.