Building Salability

How to maximize the value of your business before exiting

by Jessica Hellman

Salability is the art of making your business attractive to potential buyers and anyone else who might eventually take the reins. Salability is equally important for those selling their business, planning succession, seeking an investment or simply ensuring business continuity. At its core, it’s about transferability. How easily could your business thrive under new leadership? The reality is that every business will undergo a change in ownership at some point. Yet, far too many owners delay preparing for that transition until it’s too late. Proactively improving your business’ salability delivers benefits long before an exit. From stronger financials to greater operational independence, these improvements boost performance today and create opportunities in the future.

In this article, we’ll break down what it means to be saleable, highlight common mistakes and offer a practical roadmap to help business owners build long-term, transferable value.

Why Salability Is Important

Salability is important for two key reasons: Firstly, it maximizes exit value and, secondly, opens more exit options. A business with high salability can attract a higher number of buyers, including those of different types (e.g., OEMs and private-equity investors). Overall, salability creates more opportunities for a successful transition. However, there are many secondary reasons why salability matters. High-performing businesses are more attractive to buyers and more valuable to current shareholders, as they generate additional profits, increase employee satisfaction and maintain customer loyalty. Additionally, planning for the future ensures a smooth transition, which protects both the company’s legacy and the continuity of service for employees and customers alike.

Key Drivers of Salability

Improving salability is about reducing risk in the eyes of a buyer or successor. The key drivers of salability are signals of stability and sustainability. When a business relies too heavily on a single customer, lacks clean financial records or depends entirely on the current owner’s involvement, it raises red flags. On the other hand, when systems are strong, operations are efficient, revenue is recurring and the team is capable, the business is far more attractive to any future owner.

Financial Health

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is the basis for valuing a business. However, buyers also consider a range of financial metrics when determining what multiple to apply to that EBITDA, such as gross margins by line of business, revenue trends and office expense structure.

These additional metrics help buyers assess the sustainability and scalability of the business after closing. Companies with strong margins and consistent growth present less risk and typically attract more interest, resulting in a higher purchase price.

Customer Diversification

When too much revenue comes from a single customer, it creates a concentration risk for potential buyers. If that one customer leaves, a significant portion of the revenue will go, too. Diversification of customer revenue reduces risk and signals to buyers that the company is not overly dependent on any one customer relationship.

Recurring Revenue

Your recurring revenue is the monthly maintenance revenue (MMR) generated from your maintenance contracts. Your re-occuring revenue is any additional revenue generated from the terms of these contracts, such as repairs or billable extras like service calls and testing.

The more revenue a business earns through predictable, contract-based services, the more attractive it becomes to buyers. A high percentage of recurring and re-occuring revenue lowers risk and increases the likelihood of a smooth transition, which makes it one of the strongest levers for improving salability.

Contractual Terms

The legal terms of your maintenance contracts play an essential role in how a buyer assesses value and risk. Contracts with longer terms, clear rollover clauses and silence on transferability are far more attractive in a transaction. Contracts that are legally sound, clearly written and transferable, with terms that align with industry standards, lower risk.

Owner Readiness

As the owner of the business, if you serve as the primary customer contact, the key decision maker and hold most of the institutional knowledge, the risk to the new owner increases significantly, especially if you plan to retire after a short transition. Ultimately, a transferable business is a more valuable business, and a smoother transition benefits everyone involved.

Additionally, planning for the future ensures a smooth transition, which protects both the company’s legacy and the continuity of service for employees and customers alike.

Strategies To Improve Salability

In the short term:

1) Perform a self-assessment. Review the key drivers of salability and understand where your business stands.

2) Engage a qualified valuator with industry expertise to establish a baseline valuation of your business and provide a comprehensive assessment of key drivers.

3) Focus on financials.

a) Complete a monthly closeout of your financials, including any work in progress.

b) Ensure your chart of accounts includes all expenses necessary to keep a technician in the field as part of the cost of sales.

c) Ensure your profit and loss statement breaks out revenue and costs of sales by line of business, allowing you to calculate the gross margin for each department.

d) Verify that your balance sheet accurately reflects costs in excess of billings and billings in excess of costs for any modernization or large project work.

4) Know your true cost. Set pricing according to true cost and a targeted gross profit rather than relying on instinct or perceived market pricing.

5) Complete a contractual review. Ensure you have electronic copies of all contracts. Review each one to ensure it’s complete, in full force and effect and fully executed. Note the specific contract terms such as transferability.

In the long term:

1) Focus on trends. Examine key metrics over time to track results. These include revenue, gross margins, general and administrative expense, net income, etc.

2) Build leadership. Hire or train managers to enable the company to operate independently.

3) Invest in systems/tech. Adopt tools (e.g., enterprise resource planning, customer relationship management, automation) that improve accounting, automation and efficiency.

4) Expand strategically. This means increasing wallet share with current customers, geographic expansion and acquisitions for consolidation (not for everyone).

5) Plan the exit. Define your timeline and assemble an exit team (lawyer, broker, accountant, advisor).

Final Takeaways

Improving your business’s salability is not a one-time project. It requires integrating financial discipline, operational improvements, market strategy and people development into your ongoing strategic plan.

Taking steps to enhance your business’s attractiveness for a sale brings advantages well before you decide to exit. Enhancements, such as improved financial health and increased operational autonomy, elevate current performance and open doors to future possibilities.

As we always advise clients, start early and never underestimate the importance of being prepared. The right time to sell could come when you least expect it.