Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying them have also become more divergent and complex.
Creating value in the privately held company makes sense whether the owner is considering selling the business, plans on continuing to operate the business, or hopes to have the company remain in the family.
Keep in mind that the best time to consider selling is when business is good, the business is running profitably, and many of the above “value-adders” are in place.
The following is some basic information for anyone considering purchasing a business. Is may also be of interest to anyone thinking of selling their business. The more information and knowledge both sides have about buying and selling a business, the easier the process will become.
41% joined the family business;36% wanted more control over their future...
Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.
To find the real value of a business, we must go to its very heart: the attitude, work habits, managerial style, customer/marketplace savvy, and community reputation of the person in charge.
Selling one's business can be a traumatic and emotional event. In fact, "seller's remorse" is one of the major reasons that deals don't close.
Buyers buy a business for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. Here are just a few of the reasons that buyers buy businesses:
Most prospective business buyers really don't know from the outset the exact type of business they want to buy. Experienced business brokers and intermediaries know that many business buyers end up with what is sometimes a far cry from what first captured their imagination.
Is there pricing elasticity? What's proprietary? What's the company's competitive advantage? Status of employment agreements and non-competes?
Post-Acquisition: Are there cost savings after purchase? Are there significant capital expenditures pending? Is there synergy with the seller? Is it perceived the integration will go smoothly? Are there substantial cross-selling possibilities? Will the cultures blend?
The Financials: By training and education, many business appraisers emphasize the numbers. They will look at the past, current and future numbers. They will consider all the basic financial figures such as: • growth rate • return on investment • gross profit percentage • EBITDA percentage • industry metrics • debt to net worth • book value
Fundamentals: Business appraisers should also consider the company’s history, its management, products, distribution, etc. The following should also be seriously considered: multi-products, different markets, wide distribution and the quality of management.
Value Drivers: These are important business elements that are most often ignored or completely overlooked by business appraisers. However, they are very important to a potential buyer. • product differentiation • defensible position • technology • dominant market share • well-known brand(s) • cost advantage • proprietary customer