In preparing to sell your business, you’ve probably asked a lot of questions from your perspective. “Am I ready to retire or to take on a new challenge?” “Is now a good time to sell?” “How will I find the time to sell my business while still running it?” These are great questions. But if your goal is to maximize your sale proceeds while still preserving the legacy you’ve built, there’s another critical perspective to consider–that of potential buyers of your business. Walk a mile in their shoes with us and ask yourself these crucial five questions from their point of view:
- “Will I make money?”
- “Can I grow the business?”
- “Are there a good employees in place?”
- “Where is it located?”
- “How trustworthy are the financials?”
Buyer Question #1: Will I Make Money?
Most buyers will take on a significant amount of debt to buy your business. To service that debt and to continue to keep your employees working, they need to feel comfortable that they can continue to make money with your business without a lot of disruption from you transitioning out of it.
Buyers want to hear good things about the local economy and how the competitive environment is manageable. They want to hear that you have steady business coming in from a variety of sources and that customers and suppliers will stick with the business once you leave. Do you have contracts? A sales backlog? Do other employees handle the key accounts besides you? Positive answers to these questions…and ideally…hard, written proof…will help reassure them that they can keep going what you’ve built and encourage them to pay more for your business.
Buyer Question #2: Can I Grow the Business?
Once they feel comfortable that they can keep your business healthy, buyers want to know how they can grow your business and earn a sizable return on their investment. This growth can be organic (natural growth in the business from new sales and new locations) or strategic (from mergers and acquisitions). The more they feel comfortable that they can grow your business, the more they’ll pay. What could they do to boost sales in the future? Is growing the sales team easy to do? Are there customers or products waiting that you’ve been too busy to tackle? Is there a nearby city or area where a new branch or location could be built?
Buyers want to know about your competitors as well, particularly the bite-sized ones. How large are the sales of your competitors and is anyone looking to sell? What companies out there would be good fits with your business’s culture and employees? If you had the chance, who would you buy? The answer to how to grow the business is key to valuation, and in providing it thoughtfully, you can steer buyers towards the answers that make the most sense for your employees and for preserving your legacy.
Buyer Question #3: Are There Good Employees In Place?
We know a lot of buyers who are interested in buying and running small and medium-sized businesses. That said, we know double or triple the number of buyers who are interested in buying businesses they do not need to run day-to-day. The more buyers that can be brought to the table when you sell your business, the more valuation-increasing competition can be encouraged. The bigger the pool of potential suitors, the easier it is to pick the right buyer that will preserve your life’s work.
Do you have hard-working, self-motivated salespeople? Do you have a reliable operations manager that keeps things moving? Do you have someone in your backoffice that keeps receivables and payables in line. Best of all, have you found and trained an impressive second-in-command who’s ready to take the next step and run the business? A strong team can make all the difference in generating maximum buyer interest and enthusiasm.
Buyer Question #4: Where Is It Located?
Location matters. A business for sale in Houston, Texas, is going to attract a lot more buyers than a business for sale in Marfa, Texas. It’s not that Marfa isn’t a lovely place…it is. But buyers equate proximity to big metropolitan areas with opportunity. They believe it’s easier to find new customers, hire new employees, and manage inventory needs and service levels in a big city. Separately, for out-of-town buyers, being near a major airport with a lot of flight options makes a big difference when they think about coming to visit the business on a regular basis.
It’s not the end of the world if you’re not near a big city…you’ve obviously built a great business right where you are. But in thinking about maximizing your price and finding the right buyer for your business, are there steps you can take to build a presence in a large city? Is there a branch you have in someplace like Houston, Dallas, San Antonio, or Austin that could take on a more prominent role? If not, would it be easy to open one? If the answer is yes, there are more potential buyers to be had. If no, that’s okay too. Just remember that it may take a bit longer to find the right person to embrace your business’s location.
Buyer Question #5: How Trustworthy Are the Financials?
This is often one of the most overlooked questions. You know your business like the back of your hand. But how easy would it be for someone else to get comfortable with the numbers? Do you keep your books in a popular software package like Quickbooks or Sage 50? Do you reconcile your bank statements each month? Do your tax records match your internal books? Do you have a personable, patient CPA or accounting firm that can help potential buyers and lenders better understand your cash flows? Affirmative answers to these questions do wonders to help people unfamiliar with your business get comfortable paying a lot of money for it, and do the diligence they need to be a responsible buyer.
Ready to Answer and Sell Your Business?
Few business owners nail these questions the first time they’re asked. But it’s good you’re thinking about them. If you’re ready to sell, please consider our mergers and acquisitions advisory services to help. For those of you with a longer time horizon, our business consulting services can help you answer the questions above exactly the right way for the maximum number of buyers. Please contact us to start a conversation about taking the right next steps to sell your business.