Attract multiple buyers selling a business
The process of selling a business can be lengthy, frustrating, and overwhelming. If you own a business and are ready to sell, one of the best ways to achieve your goal to sell your business at the highest price and in the shortest time possible, is to know what’s important to you. This includes knowing what you will not accept so you can state it up front and not waste time sharing confidential information with that type of buyer.
To help you achieve the above, how would you answer the following questions as honestly as you can?
- Are you willing to work in the business after it sells or do you want to go and do something completely different?
- If you are willing to stay, for how long and how much compensation will you need to make it attractive to you to stay and can the business support it?
- If the buyer wants to do things differently in the business compared to what you have been doing, are you OK with this? For example, the buyer may wish to move the business to a different location, fire some of your key employees, bring in his own, sell off certain pieces of the business or close down some parts of the business or more.
- Do you want to sell as quickly as possible and therefore take a good offer or is your preference to wait longer with the expectation of getting a higher price?
Using the above questions to clarify your thoughts allows you to start putting a clear exit plan together and just as importantly, know the type of buyer you want that you feel will meet your goals.
Does your business have value?
Now you have an honest and clearer picture on what’s important to you, let’s have a look at the business and what you are selling.
The first question to ask is; does your business have value that would be attractive to a buyer? For a buyer to have the motivation to buy a business it must come with the following.
- A set of financial statements that show a strong performing business that has enough profit for a buyer to be willing to make a down payment and generally get finance from a third party be it as equity and/or debt.
- Are the financial statements well presented with their net book value plus intangibles which don’t appear on the balance sheet such as good standing in the industry and community that is reflected in its brand?
- Does it have a competitive advantage? If so, the greater the competitive advantage the more attractive to more buyers.
- Does it have a loyal customer base? If so, the larger the customer base the more attractive to more buyers.
- Is the industry the business is in at least steady and hopefully growing? The greater the growth the more attractive it will be to more buyers.
- Does the business have a strong management team?
How do you choose the right price for your business?
If your business has value based on the guidelines we covered above, what price do you ask for your business?
If your price is too high compared to similar businesses it will more than likely make it harder to sell. If your price is too low then obviously as the seller, you may leave money on the table. It’s my experience almost without exception that a seller thinks the price of their business is higher than others. If the price asked is too high it will discourage buyers from seriously looking and then making an offer.
If you like being different, very few sellers offer a strategic plan on the direction with the strengths of their business and potential new opportunities. If you are able to provide a written document to a buyer it may be enough to set you apart and impress a buyer who has their thoughts and ideas but when they read your plan, dovetail in very nicely to make them move forward with their offer.
Understand the different types of buyers
There are different types of buyers with different types of motivation. As the seller, if you are able to understand the different types of buyer when they first approach you about buying your business, you can then adjust your pitch accordingly.
Very simply, there are three kinds of buyers:
- Financial buyers
- Strategic buyers
- Owner/operator buyers
Let’s take a quick look at each of them.
What motivates a financial buyer?
The primary motivation of a financial buyer is simply price. That’s because they want a return on their investment. They are generally professional investors such as investment companies and private equity groups. Their business model is to acquire a business at an attractive price and sell it in the future.
What motivates a strategic buyer?
The primary motivation of a strategic buyer is gaining market share and dominating it so they have pricing power. They may be one of your competitors be it directly or indirectly but the larger they make their company through acquisitions the greater their motivation.
These are companies already operating in your niche, often much larger companies than yours. Or, they could be companies with lots of positive cash flow who want to expand quickly by buying up as many smaller businesses as possible. Often a strategic buyer may pay a higher price to take you out as a competitor fits their business model but they may also make lots of changes to your business as once they buy your business it is definitely about them and the direction they wish to go.
What motivates an owner/operator buyer?
The primary motivation for an owner/operator buyer is to create an above average income that flows from their business and provides a nice lifestyle. They generally wish to run the business themselves and may get help from family members. Often this is the first business they have bought and may be very risk adverse as they move outside their comfort zone.
If you are ready to sell your business, know what’s important to you, understand the value drivers of your business, have it priced correctly and know there are different types of buyer that may have an interest in buying your business your chances of success are high.
Remember the most important emotion all humans want to avoid is fear be it the fear of failure or the fear of making a mistake. As the seller, if you are able to help mitigate a buyers fears whether they are real or imagined, you have just increased your chances of success of achieving your goal.
Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.