What Buyers Look for in a Business Opportunity
You’re ready to sell your business. You assume there’s a buyer out there who will pay you a fair price and then nurture the company with the same attention you have. What’s more, selling the business is a major part of your retirement plan.
Buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.
There are many types of buyers: strategic and financial, individuals, companies, and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment. To evaluate an opportunity, buyers focus on three major areas:
- Cost and Terms
What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions?
Will the business continue to operate similarly after the sale? Much of the risk of buying a company relates to continuity. For example: The current owner has personal relationships with customers, distributors or vendors that the new owners may have to struggle to maintain, The owner has special expertise that is undocumented and difficult to learn, Key personnel aren’t committed to staying, or Outside competition looms. Sellers armed with solid responses to these types of continuity concerns are more likely to get their desired price. Even if you don’t want to sell your business for a few years, take steps now to ensure it can run smoothly without your personal involvement. That independence could be worth millions when you sell.
Are there unexploited opportunities? You may have focused your sales efforts in one geographic region, but there may be many opportunities to take the product national or international. A buyer that believes it can increase revenues substantially will pay more for the business than one that believes the current owners have already maximized opportunities. What sellers should do?
It may seem counter intuitive, but the things you may be most proud of can work against getting the best price for your company. Not many entrepreneurs like to boast that their company could run just fine without them or that there are plenty of opportunities they’ve failed to exploit. Yet these may be the very factors buyers seek, along with lower cash requirements. Please call us for help in understanding how to best present your company for sale.
Taken from an article written by Peter C King, VR Business Brokers/Mergers & Acquisitions, CEO
Valuing a Business
Do you know the value of your business? A business valuation lets you know where you are in terms of growth even before you are ready to leave . Knowing the value of your business helps you in planning your future and having an exit plan when you are ready to sell.
You should gather the following information to start the process of valuating your business:
- Five Years of Financials:
- Profit & Loss Statements
- Balance Sheets
- Cash Flow Statement
- 5 years of Tax Returns
- Lease (if rented)/Tax Bill (if owned)
- Inventory List
- Furniture, Fixtures & Equipment List / Depreciation Schedule
Now’s the Best Time to Sell a Business
Now’s the time to sell a business and retire, but many baby boomers are waiting. Find out why in the article below featuring Lakes Business Group’s Joe Braier where he explains that “The first step in exit planning is to find an advisor who is highly experienced in working with business owners. Do your due diligence and find a reputable mergers and acquisitions advisor who understands business valuation, deal structure, and the overall process of bringing a business to the open market. The right advisor will be willing to meet with you face-to-face, review your business, and discuss your vision for the company’s future and goals for the sale.”