Understand What Business Buyers Will Be Looking for in This New World
Recent business sale statistics indicate that approximately 16% of business owners who want to sell actually consummate a transaction. And these numbers were published prior to the current financial downturn. If you want to be among the 16%, it’s essential that you prepare now so you can be ready when the market recovers – which it always does.
Business owners who are looking to sell need to understand what buyers are looking for.
BTA’s President Jane Johnson recently interviewed Ted Leverette, the Original Business Buyer Advocate®, about the criteria business buyers will be using to assess potential acquisition targets once the market rebounds and what business owners can do now to increase their saleability.
He provided us with answers to the following questions, and more!
- What are the top 3 criteria buyers will be using to assess acquisition targets?
- How do owners assess and mitigate risks in their own businesses?
- How will this current crisis make the due diligence process more difficult and lengthy?
- If an owner decides to sell, how much of their involvement will be expected after the sale?
Some of Ted’s key insights:
- Buyers are watching to see the affect of the pandemic and financial crisis on acquisition targets:
- “They are looking carefully at which businesses are open and still profitable and those that are not open or partially open – or in their view ‘dead in the water.’”
- “They want to know all things cash flow for their targets – what it was before, what it is now, and what it’s projected to be going forward.”
- For buyers, “the businesses that are worth buying are the businesses that can produce enough cash flow and that are scalable and can continue to grow.”
- Buyers are pretty quiet right now, but are still actively looking and will be back in the market when conditions improve. Sellers need to be prepared:
- Right now, “buyers are saying: ‘let’s wait and see.’ Only the most motivated buyers are making offers ... However, buyers ARE searching, they’re just not making offers at this time.”
- “Unless owners have prepared themselves and their businesses well, we [buyers] won’t see the risk as worth it.”
- Owners need to decrease the dependence of the business on him or her:
- “If a business is too dependent on the owner, we pass. We’re just not interested.”
- Owners must have their growth plan in place and be ready to tell their story:
- “We want an owner to tell us in words, not just reports, how the business is going to perform over the next few years. And not just financially, but in terms of relationships with its constituencies [i.e., customers, employees, partners, etc.]...”
- Owners need to do their own due diligence. Make sure you know the difference between the “searchers” and serious potential “buyers,” or you can get yourself into trouble:
- “You need to know how to find the right buyers. If they’re not acting the way the best buyers behave, get them out of there. They’re dangerous.”
- “Make sure they’ll sign a non-disclosure agreement right up front before any conversations happen. It needs to be fair and mutual.”
- “As sellers, you want to make sure that your goals are met and that your business will continue on and that your employees will have jobs.”
Bonus #6: If you and your business are not prepared, buyers will move on to one of your competitors!
- In Ted’s words: “Businesses are like buses. There will always be another one by later.”
Now, more than ever, owners need to be prepared and put their companies in the best possible light. High-quality, profitable businesses and prepared owners will be well positioned to exit and achieve their goals when the market recovers.
Join us for our exclusive business owner workshop Rebuild Your Business with Your Exit in Mind to start planning for your future and the future of your business.
You will come away from the workshop with a step-by-step process and practical tools that you may use to develop your growth and business exit plan. Your chances of being able to sell, either to internal or external buyers, when profits return, will greatly increase if you have a solid, strategic plan in place.