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If you want to be among the 20% of owners who find a buyer for their business, it\u2019s crucial to not only understand what they want from you but to provide it. Prospective buyers will want many things from you, but here are nine of the most important ones.<\/p>\n
They need to be sure that:<\/p>\n
A business buyer will want to be sure that your business can survive without you at the helm. If you\u2019re the \u2018face\u2019 of your business or you have one key employee who keeps things \u2018ticking over\u2019, buyers will suspect it will collapse without the presence of you or your employee. Both scenarios will be massive red flags for prospective buyers.<\/p>\n
That\u2019s why they will want reassurance that its survival is not dependent upon your presence.<\/p>\n
Business buyers will also want to see that your key employees are under contract and will stay after the company sale. They will need to be convinced that the company\u2019s employees have the experience and capability to provide business continuity post-sale.<\/p>\n
Equally importantly, business buyers will need to be convinced the business is profitable, and conditions in your market are sound. If they suspect your business has a dwindling market or that the company has massive debts, they\u2019re likely to move on to other sellers.<\/p>\n
Business buyers will focus on factors like:<\/p>\n
So, as well as looking at the bottom line, potential buyers will check to see that business revenues have been increasing in the preceding three years. They will also want to be sure that there is a realistic expectation of continued revenue growth.<\/p>\n
Prospective buyers need to be sure the business\u2019 assets exceed its liabilities and that its revenue post-sale will cover financial obligations, and it can maintain a positive net worth.<\/p>\n
They will look at your products or services and the company\u2019s operational processes to determine whether it is capable of maintaining or even expanding its market share and position.<\/p>\n
Likewise, they will look closely at your customer base and ask questions about the company\u2019s ability to retain existing customers and attract new customers.<\/p>\n
If you have ever watched the BBC TV show, \u2018Dragons\u2019 Den\u2019<\/em>,<\/a> you will be familiar how the interest and patience of the Dragon investors evaporates in moments if they suspect the entrepreneurs seeking funding have no real grasp of their company\u2019s finances. Curiosity is quickly replaced with annoyance as the Dragons realise their time has been wasted. The Dragons rarely if ever invest in companies where the founder has little idea of their own finances.<\/p>\n Jonathan Jay, Founder and CEO of The Dealmaker\u2019s Academy<\/a>, (which provides mentoring for company owners who want to either buy or sell companies), says he has found that business owners quite often cannot tell him how much profit they made the previous year.<\/p>\n \u201cThey just do not know,\u201d says Jay. \u201cThat is concerning because it reveals their lack of grasp over the numbers and the quality of the company\u2019s management information.\u201d<\/p>\n Having spoken to hundreds of business owners in the past few years, Jay admits he is sceptical even when owners can provide a profit figure.<\/p>\n \u201cIf someone does give you a number, you can bet they have exaggerated and rounded the figure up by tens of thousands of pounds.\u201d<\/p>\n He is equally sceptical about business owners estimates of company debt.<\/p>\n \u201cWhatever they tell you about debt, it will always be twice as much. They will forget the pile of bills they have not paid in the desk drawer. They do not want to think about it.\u201d<\/p>\n Potential buyers will need to be sure that your company\u2019s turnover and profits are not solely reliant on the orders of one or two large clients or customers. After all, if just one of the two clients should move away or finds it difficult to pay on time (or even reneges on payment), the company\u2019s cash flow, turnover and profits will be in jeopardy.<\/p>\n They want to see evidence of a large, well-established customer base. Buyers most like companies with recurring revenue models.<\/p>\n Would-be buyers will want reassurances that the company is not embroiled in any legal action or at risk of becoming so. They will look for evidence of infighting between shareholders, unfair dismissal cases, class actions, as well as investigations by HMRC or the Financial Conduct Authority (FCA).<\/p>\n Just because you have run your company for \u2018X\u2019 number of years or built it from scratch, you shouldn\u2019t expect to receive a banker\u2019s draft for the full amount you have in your mind right now. A savvy business buyer is unlikely to pay you the total amount you want on completion of the sale. Depending upon what they or their team of experts discover during the due diligence process, they are more than likely to negotiate the asking price down or to demand different terms.<\/p>\n Many will negotiate hard to defer consideration for between three and five years, for example.<\/p>\n It\u2019s critical that you and your business partners have reached agreement on selling the business and that they are aware you\u2019re talking with prospective buyers or business brokers. If prospective buyers suspect the other partners are talking with different business owners, they\u2019re likely to run a mile.<\/p>\n \u201cIf the person I am on an initial call with tells me the other partners do not know they are speaking with me, it tells me there is some sort of rift in the company, and it is distressed because the partners are falling out,\u201d says Jay.<\/p>\n Prospective buyers or their team of experts will conduct due diligence before finalising any business acquisition or merger. It\u2019s then that all of the ugly skeletons you had hoped to hide in the closet will come tumbling into the light. For example, they will discover the lease on your company\u2019s headquarters is about to expire, that you don\u2019t own trademarks, copyright or patents for your products or services, you and your partners have provided personal guarantees on business loans, or that a disgruntled former employee or manager is suing the company.<\/p>\n You can save yourself and prospective buyers time, energy and effort by being open about details like these during the initial meeting or telephone call.<\/p>\n When it comes to selling a business, many owners base their company valuation on the amount of money they need to accomplish their exit goal, whether that\u2019s to pay off a mortgage, buy a new car, or retire to somewhere sunny, according to Jay.<\/p>\n During negotiations, he asks owners how they arrived at their valuation.<\/p>\n \u201cWhen business owners tell me that\u2019s how they\u2019ve reached a valuation, I say, \u2018I understand that\u2019s important to you, but it\u2019s like me saying I want to sell you my car for \u00a3100,000 when my car is only worth \u00a35,000. So, we need to be realistic about the valuation\u2019.\u201d<\/p>\n No matter whether you\u2019re hoping for an immediate business sale or happy to spend time growing your company, it would help if you started working on an exit strategy with a part-time Finance Director now. He or she can help you to identify areas of weakness within the business that can be improved before the company is put up for sale. Your business might lack a strong earnings history, for instance, so you and your part-time FD<\/a> could look for ways to improve that growth trend.<\/p>\n4. The business has more than one main customer<\/strong><\/h4>\n
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5. The business is free from legal entanglements<\/strong><\/h4>\n
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6. You are realistic about the consideration you\u2019re likely to receive<\/strong><\/h4>\n
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7. You and your partners all want to sell<\/strong><\/h4>\n
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8. You are honest about the state of the company<\/strong><\/h4>\n
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9. Your valuation is realistic <\/strong><\/h4>\n
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Improving the saleability of your company<\/strong><\/h4>\n