Selling your business? How Attractive is it To Buyers?

Understanding how to sell a business can be a daunting task.

Business owners often wonder if there are genuine buyers out there and whether they will recognise the value of the business. 

The reality is, there are thousands of genuine buyers looking for the right business to buy.

As a business owner thinking of selling, the first place to start is knowing your company’s value and setting expectations. The methods below will put you in a better position to attract the buyer who will best meet your selling objectives.

Know Your Buyers

Knowing the different types of buyers is crucial when selling a business. It’s important to understand what is driving their buying decision. At its simplest, buyers can be put into two different categories: strategic and financial buyers.

Strategic buyers may be companies that already operate in your industry, such as competitors or suppliers, or perhaps they want to diversify and enter it. They look at synergistic ways to integrate companies so they can achieve an advantage such as horizontal or vertical expansion, or they may wish to eliminate competitors.

Financial buyers may include individuals, private equity firms and family offices. They are seeking an investment that gives them a future stream of profits. Individual financial buyers may also be looking for a business they can operate themselves, they may be driven by lifestyle, income and seeking something that they can improve and then sell later themselves.

Create a list of possible acquirers by looking at the supply chain you operate in – competitors, suppliers and customers. Then talk to a trusted adviser such as a broker or M&A professional who will be able to introduce more buyers to the table. Creating competitive tension between acquirers provides advantages when it comes to selling a business.

How Does Your Business Look to a Buyer?

How does your business look to a potential acquirer?

Depending on the type of buyer, it’s likely that they have already experienced different facets of your business (or they plan to). Whether it’s making a purchase from you, visiting your location, exploring your website or working side by side as a supplier or partner. 

First impressions count.

Make sure that these interactions and experiences present your business in the best possible way. 

Additionally, when you take your business to market, ensure you have a well written Information Memorandum that takes into consideration the key attributes buyers want to see. This includes goals, financials, product information, management team, market information and legal information such as trademarks and intellectual property. It becomes difficult to move past any first impression if not executed well. By highlighting your strengths from the start, you’ll be sparking genuine interest and positioning them for acquisition. 

Get Your House In Order

In the same way that you would get your house ready for sale, you also need to get ‘your house in order’ when it comes to selling your business. This essentially comes down to the time frame you have to sell your business. If time is on your side, there are some key drivers you can focus on to maximise value. It’s ideal to give yourself at least 12 to 18 months to focus on these. At a minimum you should be focusing on your cash flow, expenditures, tax strategy and aspects of your operations. Tweak these so that you can get your business performing as best as possible. 

Put yourself in the shoes of a potential acquirer, what are the red flags and what are the factors they would pay a premium for? Our complimentary tool The Value Builder Score is a great first step in looking at your business through the eyes of an acquirer. 

De-risk Your Business

When you are selling a business it’s critical to understand the risks in your business. Acquirers will assess the risk and opportunity in your business and adjust their valuation accordingly. Some risks are out of your control such as political and environmental risks. However, there are many you can address to impact the value of your business.

Key-man risk, is when the business is heavily reliant on a single person such as the owner or a few key individuals. Putting the right systems and processes in place, developing succession plans and building your management team are ways to address this. 

Concentration risk is the over reliance on a single customer (or few customers) or suppliers. If your relationship soured, your main supplier went out of business or a disaster strangled output, this could cripple your business. Acquirers will look at any more than 15% reliance on any one customer as being a problem.

Other risks  businesses have relate to  employee contracts, lease terms and time-frames, outstanding workers compensation claims, patents issues and environmental permits to name a few. Most issues have a solution, and this needs to be communicated to the buyer. Most acquirers will place your business through the wringer in order to unveil the risks. By doing the work upfront yourself you can be prepared and eliminate many of the concerns.

Performing an internal due diligence and subsequently going through a process to de-risk your business will put you in the best position and ensure your business will become more attractive.