Note: This is the first in a two part series on the differences between selling a house and selling a business. In part one, we discuss some of the key drivers and the effects that improvements have on home value. In part two, we drill down into the effects that various improvements in a business can have on transaction value. This is an abstract from a Whitepaper on this subject available upon request from the author at: [email protected]

By the time most business owners start thinking about liquidating their company to fund another phase of their life, chances are good that they already have transitioned from one home to another, often multiple times. That starter house purchased shortly after being married most likely led to a growth home for a family and later, perhaps another home, one fit to display in the annals of “Architectural Digest” and then finally; maybe even back to a smaller, more maintenance free abode, better suited for empty nesters. (Anyone who has been through it appreciates the value of the kids growing up, starting out on their own, and getting them off the payroll!)

So chances are good that a business owner has sold more houses than companies and, for a first time business seller, the analogy no longer applies once you get into the details. The fact is, the experience is quite different. Especially when it comes to getting the property ready for a sale process. The biggest differences are in the time it takes to complete the improvements and the paybacks for those investments.

Recently a national remodeling magazine published some data on the Cost Vs. Value of various projects often considered to improve the value of a residential holding prior to sale. The table below represents a selected sample of five of the largest and most popular considerations (full report is available at:



Job Cost

Resale Value

Cost Recouped

Bathroom Addition




Garage Addition




Major Kitchen Remodel




Master Suite Addition




Roofing Replacement




Figure I: 2014 National Averages for Popular Upscale Real Estate Improvements Source: remodeling: Cost Vs. Value Repor

It is interesting to note that time to complete these improvements is typically a function of available skilled trades but is generally measured in days. In total it may take 30, and at most, 60 days to get the asset ready for a listing but astonishingly, none pay back completely on their investment. The outcome is that to justify any one of them, the motivation has to be to dress up the property, improve curb appeal and reduce the time to secure an offer.

An experienced home seller will tell you the value of any real estate is almost always a function of three factors: Location, Location and Location. A home for a seller might only be just a house and some land for a potential buyer and often the value difference between them can be simply a matter of life style preference and architectural/design appreciation. The more closely aligned these factors are between the buyer and seller, the smaller the gap between asking and offer price, more efficient the negotiating process and more satisfactory the ultimate outcome.


So What About Selling a Business?

Getting a business ready for a transaction can be far more complex and take much longer. There is typically more money involved, more players and if the asset is going to be used to fund another project or retirement for the seller, many more considerations including possible ongoing involvement, post-closing. Since most buyers (financial or strategic) are looking for a significant financial return on their purchase transaction, you can count on the strength of the asset being tested through detailed due diligence that could take months and the motivation for operating the business going forward by the buyer may be entirely different than that of the seller. For sure, the personal benefits of ownership are not foremost in the mind of a buyer.

Most business owners need to understand the difference between the motivation for a transaction between buyer and seller and optimize the business and its performance accordingly. This difference is almost always the cause of the valuation gap that exists between the mind of the buyer and that of seller. Changing from a “life style” business where the owner uses the business to fund personal interests to one that is optimized to provide maximum financial return can require a whole new outlook on the company. It often involves a perspective that is both foreign and frequently uncomfortable for the both the seller and his/her management team. It is one that must be well understood because it is intricately related to the objective of the sale transaction. Even transferring the company to a group of existing employees is quite different than to an outsider in terms of valuation, ongoing involvement and changes that need to take place to optimize post transaction performance.

Since capital market conditions are not under the control of the seller they are an important consideration rather than something that can be driven by either buyer or seller. The markets run in cycles and are a function of available debt, equity and leverage needed to finance operations or a transaction. These factors determine if it is a “buyer’s” or a “seller’s” market. While status of the market condition is important, it is not be the greatest consideration in the seller’s decision making process.

Among the top ten reasons a seller should consider an ownership transition are: owner fatigue, stress, cost to remain competitive, and personal health. Like the market conditions, none of these are completely under the control of the seller either. However, the perspective gained from a thorough and thoughtful assessment of these factors can influence a seller on his or her readiness to engage in a sale process. This is probably the most critical timing consideration in the “Go/ No Go” sequence. It is the one that generally trumps the other two in the over-all readiness assessment. If a owner is not absolutely clear on what he or she will do after the closing of a business sale transaction, changes are good that they are really not ready to do sell.

In part two of this article we will address those things that an owner can control in getting a business ready for a sale. And like selling a house, the results can be surprising.