<B> Selling Your Business Learn to Think like a Buyer
You've built a great business with love andcare. It has grown larger than you'd ever imagined. It generates a nice profit.As a result, this has allowed you and your family to live comfortably.
Now, you're ready tosell. You assume there's a buyer out there. You want someone to pay you a fairprice and nurture the company with the same attention you have. Mostimportantly, selling the business is a major part of your retirement plan.
Needless to say,buyers look at businesses differently than sellers. So to achieve the outcomeyou want, it's important to think like buyers and understand how they evaluatea business.
Knowing What Buyers Want
There are many typesof buyers: strategic and financial, individuals, companies and private equityfunds. Despite differences, all buyers consider how much they'll invest toacquire a business, the amount of risk they'll bear and the potential return ontheir investment.
To evaluate anopportunity, buyers focus on three major areas:
What will it take toacquire the business? How much cash and how much debt? What are the deal'sterms and conditions?
There's one standoutissue: the amount of cash required to make the deal. By decreasing the cashrequirement and increasing the acceptable debt portion, a seller can make itscompany more attractive - and perhaps even increase its selling price.
The biggest factordirectly affecting a deal's attractiveness is the asset base. Simply put, the morethe buyer can borrow against (or for post-transaction capital), the less cashit needs upfront. As collateral, banks usually accept land, buildings,equipment, inventory and accounts receivable. Many entrepreneurs have purchasedthe land their business resides on and leased it to the company. An oftenunanticipated side effect is this structure reduces the company's asset base.As a result, this decreases the amount of debt leverage the seller can obtain.
Another way sellerscan reduce the buyer's initial cash requirement is by accepting part of thepurchase price over time. Commonly known as "seller paper," this cando a great deal to lubricate a sale.
Will the businesscontinue to operate similarly after the sale? Much of the risk of buying acompany relates to continuity. For example:
- The current owner has personal relationships with customers, distributors or vendors that the new owners may have to struggle to maintain,
- The owner has special expertise that is undocumented and difficult to learn,
- Key personnel aren't committed to staying,
- Offshore competition looms.
Sellers armed withsolid responses to these types of continuity concerns are more likely to gettheir desired price.
Even if you don't wantto sell your business for a few years, take steps now to ensure it can runsmoothly without your personal involvement. That independence could be worthmillions when you sell.
Are there unexploitedopportunities? You may have focused your sales efforts in one geographicregion, but there may be many opportunities to take the product national orinternational. A buyer will pay more for the business if they believe it canincrease revenues substantially over one assuming the current owners havealready maximized opportunities.
What Sellers Should Do
It may seemcounterintuitive, but the things you may be most proud of can work againstgetting the best price for your company. Not many entrepreneurs like to boasttheir company could run just fine without them. They don't want to seem they'vefail to capitalize the numerous opportunities out there as an owner. Yet thesemay be the very factors buyers seek, along with lower cash requirements.Contact Tampa Cash Cows.com today at813.469.7957 today to learn how to best present your company for sale.