What Will the Buyer of Your Business Think?

Mike Ginsberg

Come on, admit it. The sale of your business has crossed your mind. Maybe not today but if you own a business, the thought of selling it has crossed your mind, and more than once. Maybe you’re at your wits end dealing with a disgruntled employee or a needy client and the notion of turning the proverbial keys over to someone else feels very desirable at the moment. So, what’s stopping you?

Owners have many different reasons for selling, or not selling, their business. Irrespective of the individual reasons, collectively there is one question that is inevitably on the mind of every business owner. What is the buyer thinking? If you knew the questions that a professional business buyer will ask of their acquisition team before buying a business, you would be able to determine how well your business will stack up. Regardless of market conditions, interest rates, client matters or the countless other value influencers of a particular business, here are the five questions that a professional buyer will always ask when they look into buying a business.

1. Does the seller have a distinct competitive advantage that is not easily replicated by its competitors? The follow-on question is whether the seller is exploiting their advantage to its maximum potential. Service businesses are service businesses, right? Wrong! Your client base, your approach to servicing and retaining your clients, how you prospect and treat your staff is unique to your operation and should never be undervalued.

2. How is the business performing financially? Are you coming off a rough year? What are you expecting for the remainder of this year? What is the forecast for next year? Are you able to determine profitability on an individual client level? Answers to these important questions will determine how your business is performing financially in the eyes of a buyer. Most owners do not have all of these boxes checked properly. If you do, you’re ahead of most.

3. If I bought this business, would I be able to run it without the owner(s) there? Many service businesses rely heavily on the owner/operator to run successfully. Those businesses that truly rely on non-owners to manage operations, upsell and support established clients, and prospect new clients stand out from competitors. Owners who pull themselves off the firing line when something goes wrong, or have others who envision where the business will be in the future, have distinguished themselves even further in the eyes of a professional buyer.

4. How sustainable is this business?  Buyers will examine historical financial performance to determine if the business is generating consistent revenues month by month, quarterly, and on an annual basis. Businesses with sustainable financial performance are better positioned for sale than ones that experience significant spikes in revenue or profitability. Management needs to be able to explain the seasonality that exists within their business and how their company is positioned to deal with those fluctuations. Client concentration could also jeopardize sustainability and should be closely scrutinized and monitored on a regular basis.

5. What is my exit strategy from this investment? Professional buyers want to know their exit alternatives before they invest in a business acquisition. Helping them answer this question by being able to explain industry trends, client overlap with competitors, expansion opportunities and complimentary service offerings paves the way toward an attractive exit discussion.