Business Owners – What Buyers Look For In A Business

Business Brokers New York

 

 

 

 

 

 

 

 

 

It’s All About The Buyer

Most business owners give little thought to what buyers look for when contemplating the acquisition of their business. Rather, owners mostly seem preoccupied with what they need themselves in terms of the deal structure, especially what price they can get for their business. Now naturally, that’s important, but in order to sell their business, more thought should be given to what a prospective buyer wants, not what the owner wants…if they want to clinch the sale.

Keep Financial’s The Key Focus

Almost without contradiction, the first port of call for most prospective buyers is an examination of the financials. Prospective buyers expect well documented financial information, that is up-to-date and accurate. In my experience, too few business owners pay enough fastidious attention to this matter, often ignoring critical record keeping of this nature. Unfortunately, when time comes for the owner to sell their business, poorly presented financial information is a major element, which creates a high degree of frustration among many prospective buyers. If an owners financial information is either not available or in disarray, the buyers perception in the least is tarnished, but in the worst case it engenders suspicion of the owner and viability of their business.

Keep A Keen Eye On Profitability

Next to financial stability of the business, plus sound record keeping, comes overall profitability. And, profitability is one of the key factors in determining business value. Believe it or not, I have discussed this subject with hundreds of business owners who fail to grasp that poor profitability can substantially reduce business value. Owners are naturally proud of their revenue growth, but unfortunately pay little attention to expense control, to achieve respectable margins. In fact, this is generally the first question a prospective buyer asks me, “is this business profitable”? Alas, these days, unfortunately, I have to answer “no”!

Now, not all blame can be leveled against the business owner, since today there are many mitigating factors which affect an owners ability to run a profitable business. For example, local, state and the federal government are constantly creating many barriers for business owners, which put severe constraints on their ability to stay afloat. In addition, economic conditions these days are not conducive to high growth, especially those created by increasing inflation caused by Fed money printing, which wreaks havoc with an owners best laid business plans.

Customers and Markets Is A Major Buyer Concern

A third important aspect of the business, which is part of a prospective buyers due diligence, is size and structure of the owners marketplace. There are many more sophisticated buyers out there these days and they want to know market size, growth potential and other salient features, such as customer retention and satisfaction, which contribute to business business growth and longevity. Often, a prospective buyer requests a discussion with a key customer, which is usually a surprise request to the business owner, but is necessary requirement with submission of a Letter of Intent. This aspect of buyers due diligence must be handled very carefully, as there is potential for damage, lest it is not managed in a surreptitious manner.

More to come….check in soon!

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Small Business…Myth or Fact

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Myth #1…Customer’s are Always Right… 

A huge myth…if that were the case, nobody would be in business. Customers are certainly important, as that’s where all the sales come from. But, you can’t manage a business that way as customers are fickle and it’s a sure way of putting yourself out of business.  However, the customer is still the customer, therefore empathy and tact are required. As long as the customer knows what your policies are and you set their expectations correctly, customer satisfaction will be elevated.

Myth #2…Make It, and They’ll Come… 

How many times have I heard this line. Some of the biggest companies in history have tried this philosophy and it has failed. Just because a business owner creates a new widget, doesn’t mean customers will line up at the door to buy it. To be a sucessful entrepreneur you need to be the best marketer on the block. A first class sales organization and sales channel beats a whacky product idea anytime. Unfortunately, many business owners fall in love with their products instead of attacking the real challenge.

Myth #3…Sales Revenue is the Key…

Nope! How many times have small business owners proudly told me what their sales revenue is, as if that’s the magic key. Yes, sales are important, but as measure of performance it has no meaning. The only real measure is cash flow…cash flow…cash flow. It doesn’t make any sense to keep growing the company if it’s continuing to lose money. It’s not rocket science, but if there’s less money at the end of the month than at the beginning…failure follows…and maybe bankruptcy.  Build customer value and focus on cash flow and profitability and the financial rewards will follow.

Myth #4…Social Networks Drives My Marketing…

Unfortunately, social media does not work well for all companies and in some cases it’s simply a waste of time. Demographic analysis is the key…you have to find out where your customers they come from and how they interact with each other. It’s then possible to be highly selective and to focus on using a specific social media tool that they fraternize and become part of their conversation. Once you’re in their circle of influence, the rest is easy.

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