How Can You Find the Ideal Buyer for Your Business?
In the day-to-day routine of running your business, it is easy to forget that eventually the day will come when you need to sell. The last thing that any business owner wishes to discover is that they are ready to exit, but they are hopelessly underprepared. One of the key ways to prevent this from happening is to prepare for the sale of your business as far in the future as possible.
1. Always Look Ahead to the Future
Many experts consider not having an exit strategy to be a risky endeavor.
So, what are some of the most important steps that business owners need in preparation for selling their business? The first step is thinking about your exit strategy on the day you found your company.
If you build your business while keeping an eye on the fact that you will one day be seeking to be acquired, then you will adjust your plans and strategies accordingly. All of this means understanding the market and knowing exactly what prospective buyers want from a business. In other words, the sale of your business should be built into its very foundation.
2. Think About Prospective Buyers
There are a variety of reasons why acquisitions occur. For example, sometimes it is an entrepreneur looking for opportunities, and sometimes it is a business in the same industry that is looking to expand. The more you can learn about the motivating factors that cause individuals and entities to buy businesses, the better positioned you will be.
3. Constantly Network
Another good idea is to constantly network and make connections. The more people you know, the better off you will be. You may be running and developing your business for decades. During this time, get to know as many people in the industry as possible.
While it may be necessary to modify the exit strategy in the future, having one in place serves to create an invaluable framework for when the time comes to sell. A savvy business owner will have a well thought out exit strategy in place at the very beginning.
When you work with a business broker or M&A advisor, you will also benefit from their professional connections and years of networking with buyers. Selling a business is all about preparation, making connections, and finding the right advisors and partners.
Copyright: Business Brokerage Press, Inc.
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Key Steps for All First Time Buyers
Are you a first-time business buyer? If so, it is critical that you work with a business broker or M&A advisor. If you’ve never purchased a business before, you simply can’t anticipate all that is involved in buying a business.
Buying a business is vastly different than buying a home, which is typically the largest purchase that most first-time business buyers have made. Sometimes buyers assume that since they have made large investments before, they will have a leg up in the business buying process. However, they typically quickly find out that they still need a great deal of assistance to navigate the complexities of the business buying process.
Business brokerage professionals know the process, the lay of the land, and the players involved. Additionally, business brokers and M&A advisors know where the traps and pitfalls are located. When it comes time to buy a business, all prospective business buyers can benefit from a guide.
Let’s take a closer look at some of the steps that are involved in purchasing a business.
Sign a Confidentiality Agreement
Prospective business buyers should always be ready to sign a confidentiality agreement. It is important to put yourself in the shoes of the seller. They have invested a great deal of their lives in their business and allowing someone to peak behind the curtain can be a stressful prospect. Signing a confidentiality agreement is an initial sign of good faith.
Investigate the Business
Next, you’ll want to gather a good deal of information about the business. Once more, working with a business broker or M&A advisor is a prudent move as business brokers understand what kind of information should be acquired. They have an understanding of how to uncover important information that might otherwise go unseen.
Armed with as much relevant information as possible and an experienced brokerage professional, you’ll want to carefully evaluate the business in question. With the right information and experienced professionals at your side, you can be sure that you are making a wise investment.
Make Your Decision
The next step is to either decide to make an offer or pass on the business. You and your business brokerage professional will carefully evaluate a range of information including financial statements and tax returns. When choosing to make an offer, it is important that all key details are clearly laid out in writing, and this includes contingencies.
Finding the right business for you, in part, means determining what kind of business you truly want to own. The good news is that business brokers and M&A advisors are experts in every point examined in this article, and they can even assist prospective business buyers with determining what type of business is a good fit. The sooner you begin charting out a plan, the greater your chances of finding the right business for your unique needs, preferences, and specifications.
Copyright: Business Brokerage Press, Inc.
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What Are the Financial Considerations of Seller Financing?
Deciding how the purchase of a business should be structured is no small task. If you are planning to help finance the sale of your business, you’ll want to tackle this issue very early in the sale process. When it comes to small business sales, a high percentage of deals include some seller financing. Here are some of the most important things you’ll want to think about beforehand.
Interest Rates
The simple fact is that interest rates cannot be overlooked. In an era where interest rates continue to climb, the future rates are far from certain. That’s why it is critically important to factor in interest rates to your buying decision. In the event that you find a buyer, you’ll need to decide what is the acceptable interest rate for a seller financed sale.
The Buyer and Debt
It is also quite important to know whether or not a buyer will assume any long-term debt or secured debt. Early in the process, you’ll want to address this topic and come to a conclusion regarding the optimal path forward. If there are favorable terms, this usually means a higher sales price.
Taxes
There will, of course, be tax implications to the sale. It is only prudent to work well in advance with a tax professional, to understand every tax implication. You should gain an understanding of how the taxes will work long before a sale takes place. You’ll also want to talk to an experienced attorney to understand the legal implications of seller financing.
Without a doubt, there will be tax implications that affect your sale. That’s why you’ll need to understand what those implications are and what it will mean for you.
Additional Costs
Just as taxes can throw a curveball into the mix, this fact holds true for additional costs. You’ll want to consider if there are any unsecured creditors that still need to be paid in full. Closing costs are another commonly overlooked issue. It is prudent to determine whether or not the seller plans on paying for part of the closing costs. Closing costs, just like taxes, can be sizable and should not be overlooked.
Knowing Your Lowest Price
Before walking into any negotiation, you need to know what is your lowest price. It can take months or even years for a business to sell. You need to know what your lowest price is for when the day comes that an offer is made.
Working with a business broker or M&A advisor is a savvy way to address all of these issues well in advance. There are many factors that go into the sale of a business and having an experienced professional by your side is simply invaluable.
Copyright: Business Brokerage Press, Inc.
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Prepare for Your Exit When You Launch Your Business
You’ll often hear business brokers and M&A advisors say that the right time to prepare for your exit is when you first launch. By that they mean that it’s important to always be thinking about how to optimize your business so that it is streamlined for an eventual sale. Some of the savviest entrepreneurs and business owners are also thinking about partnering with those who will ultimately want to buy their businesses, even if the prospective sale of their business is many years away. It is easy to see why so many top-level entrepreneurs feel this way, as it is prudent to plan for the outcome you want from the very beginning.
It Pays to Think Ahead
The simple fact is that in most endeavors in life, it pays to think ahead. Selling a business is no exception. The rate of businesses that are being acquired is rising significantly. In a recent study at the University of Maryland, researchers found that in the last three decades the rate of venture capital-backed startups that have been acquired has soared from 10% to 90%.[1]
Anyone building a business should build that company in such a way that it will be appealing for acquisition down the line. Thinking about who the ideal buyer might be will help you to properly shape your business operations.
Many owners have an eye on businesses that work to serve similar markets. You may also want to think about how your product and your business model work to address an overlooked need within the existing customer base of that larger entity. If you can clearly show that acquiring your company will instantly lead to new business, then much of the battle is already won. By finding customers that a business is overlooking, you have positioned your business to be an attractive target for acquisition.
Have a Success Oriented Strategy from Day One
In short, company founders must understand their customer, their product, and why a customer will want and need what they offer. Being able to attract the right talent is also important. If a successful staff is firmly in place, your business will be far more attractive to potential buyers.
Understanding from day one the path of your startup and where you want to go will make all the difference in your success. It is important to remember that it is much easier to build an acquisition friendly company from day one than it is to retrofit your existing company years down the road.
1. The Great Startup Sellout and the Rise of Oligopoly
Copyright: Business Brokerage Press, Inc.
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The Different Buyers You Might Encounter
If you’re selling a business for the first time, you might have a preconceived notion of the type of buyer that’s most likely to purchase your business. However, the truth is that sellers often get competitive and attractive offers from buyers that they were not expecting to have an interest in their business. Let’s take a look at some of the variety of buyers you might encounter on the path to selling your business.
Your Family Members
One common buyer would be a member or members of your family. One of the advantages to selling to family members is they already may have a deep understanding of what it means to own and operate your business. As a result, they may feel more prepared.
On the other hand, just because someone is your family member does not mean they have the chops to actually run your business. Further, if you sell to a family member, you may end up dealing with someone who has less cash available to buy.
Competitors and Synergistic Buyers
You may not have warm fuzzy feelings towards your competitors, but the truth is that you need to be open to the idea of receiving offers from them. In fact, many competitors immediately look to their competition first when they decide they are going to expand their business. Your competitors make a lot of sense as good candidates because they understand your industry. Purchasing your business represents a viable way to rapidly expand their own offering with products and/or geographical reach.
Along similar lines, synergistic buyers acquire new companies in order to leverage their existing operations. You will find these buyers are typically larger entities in the same or related industries. In buying your business, their goal is to support and quickly add value to their current organization.
Individual Owner Operators
Many sellers end up with a deal on the table from an individual buyer. There are definite advantages associated with this type of buyer including the fact that it can streamline the sales process when you are dealing with one person rather than a group. Individual buyers oftentimes have corporate experience that helps them to effectively take over and manage a business. Another advantage to the individual buyer is that he or she oftentimes has a personal interest in the business and plans to successfully operate and improve it.
Financial Buyers
A financial buyer is most interested in their ROI. They will zero in on finding out about the cash flow and long-term exit strategies. These investors are typically only interested in very solid companies that are generating solid revenue. They will be less likely to want to take the time to make changes and improvements, so they will expect healthy returns on their investment on day one.
Your business broker or M&A advisor will help you understand the pros and cons of various buyers when it comes to your unique situation. Ultimately, you’ll find the type of buyer that is best suited to buy your business and that fulfills your needs and goals simultaneously.
Copyright: Business Brokerage Press, Inc.
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The Complexities of Business Valuations
Many buyers and sellers are not aware of the complexities that go into appraisals for businesses. To get the most accurate results, a business needs to be looked at from a variety of angles. When completing a business valuation, we look at everything from comparable businesses to EBITDA. There are a lot of nuances involved that are customized depending on the business at hand. Without looking at a wide range of factors, you could accidentally get less for your business than what it’s really worth.
What Will Be Important for Your Buyer?
When you’re selling a business, part of the fair market value of your business relates to benefits that your buyer will receive. Obviously, your valuation will include factors such as market share and profitability that a buyer will enjoy. But there are also less obvious factors. For example, is there potential for the business to expand beyond its current niche? What is the competition like? What about access to customers?
Current Trends
Also brought into consideration should be trends that will impact the business. These trends could be everything from trends in technology to economic or social changes. In some cases, business trends might make a business much more valuable. For example, due to the recent pandemic and fast adaptation of online conferences, companies that integrated video conferencing had a major edge over those that did not.
When business owners are aware of emerging market trends, it allows them to develop new offerings to meet current demand. In turn, this can boost business growth and increase a business valuation.
The Workforce
Recent workforce issues have definitely impacted the value of businesses across the board. If you have a strong, highly trained and dependable workforce, it will help to increase the value of your business. If your staff members are customer-facing, positive customer experiences will drive revenue growth. Further, buyers will feel more confident buying a business with a reliable roster of employees.
There are many questions that will affect your buyer and those should be considered in the price you ultimately decide upon. The savviest business owners are always thinking about trends in society and how to work with them to strengthen the value of their business. They will also consider the decisions made by their competitors and how they impacted their businesses for better or worse.
Copyright: Business Brokerage Press, Inc.
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