Sellability Driver 4 of 8: The Valuation Teeter Totter

The 4th driver explains why explains why a business has to make sure that it generates cash fast and that cash moves through the company.

Video Transcript:

Remember when you’re a kid, you go to the playground and teeter totter, the heavier kid goes on and the lighter kid gets up, the same relationship exists between the way cash moves through your company and its value. And it’s one of the drivers of sellability. Essentially, when a buyer come in and buys your business, they’ve actually got to write 2 checks. they write a check to you the owner, the second check is to fund your company’s working capital, that’s the money your business needs to operate the day you hand over the keys to the buyer. the deal is,  that the buyer has to write those 2 checks out of the same check book. So they way your company sucks up in the way of cash your company needs to operate, the less they’re gonna be willing to buy the business, so they way to improve your score in the valuation teeter totter, is really to make sure that your business is generating cash, if you collet receivables, collect them faster, if you can extend your payables a little bit more, make sure you’re delaying your payments to the point that you’re generating cash as a business and that’s gonna improve your score in the teeter totter.

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