The sale of a business can be a complex process. It relies on the right detail and precise timing for both the buyer and seller. Both parties involved will have a long journey of due diligence and discovery. It is often said that buying a business is much easier than selling one. Having been on the selling side of several transactions over the last few years, the q4 team can confirm this. We see the best chance of a successful sale at the intersection of the buyer’s desires and the seller’s offerings.
Listen to Grant speak with Joshua Lewis on this recent episode of Business Built Freedom
Future-Focused
“You must start with the end in mind.”
Stephen Covey
What we have seen is that achieving a great sales outcome starts the moment a business is launched. The most successful business sale q4 has seen was a small business that started over 20 years ago with the sale in mind. The first five years were dedicated to establishing the foundation; every effort after that was about building the ultimate sale value.
Succession should be a primary discussion throughout the entire lifecycle of the business. Continually assessing things like who are the key people, what are the key risks, and what happens when the founder is not there.
Of course, not everyone starts their business with the sale in mind. However, when a business owner is serious about selling, they should prepare for a 5 to 10-year timeline. There are many examples of buyers knocking on someone’s door and offering crazy money to buy their business, but that is not the norm.
The Buyer’s Mindset
Just as a business owner markets and sells its products/services with the needs of the customer in mind, thinking like the buyer when selling a business is crucial.
Revenue
It seems obvious that this would be the first thing that a buyer considers. But buyers will also seek to understand how that revenue is earned and the certainty of it recurring in the future. Analysing just how certain that revenue will be there in the next year; next three years; next five years.
Drilling a bit deeper, a careful buyer will look at the business’ customer base. Taking into consideration how large the customer pool is and whom they consist of. For instance, customers with a strong relationship with the current owner vs a more generalised customer base. The buyer will want to understand how much of the revenue is attributed to each customer. The greater the concentration in one customer, the greater the risk.
From there the buyer will dig deeper, looking at who makes up the business.
Key People
There are key people in every business. Buyers will want to know as much as they can about the business’ staff and suppliers. They will consider who these people are and the relationships they have with the business vs the owner. Will the departure of the current owner spur the departure of key staff members? Will supplier relations be affected by the owner or key staff members leaving?
Essentially, looking at the key people is a way that buyers will assess if the business is systems-based, vs key-people-based. If there is evidence that the business is heavily reliant on one or two key people, including the owner, the buyer may question future revenue. The prudent buyer will search for such weaknesses in the business.
A serious seller will take note that this can be addressed but it does take time and planning.
Focusing on the future will also be on the buyer’s mind when considering their purchase.
Potential Growth
After looking at the revenue and key people, the buyer will want to know how easily this business can grow. How easy will it be to increase its value in three to five years?
This growth potential will be identified by the current owner. It will be found in the opportunities or ideas that weren’t yet realised. The owner will have things they “should have and could have” done to grow, but maybe they weren’t ready to take the risk or lacked the personal capacity or desire to implement.
Additionally, businesses that show potential for growth will have a formula – based on processes, not people – that can be repeated to grow. Buyers will search for this repeatable process for growth.
The owner will be able to point out these opportunities or channels for growth.
Right Place, Right Time
Whilst you have done all the right things to get your business ready for sale the big question is……Where do you find the buyer?
The most difficult part of the process for the seller will be finding a buyer. When selling a business, it’s not a matter of just sticking a “For Sale” sign out front and listing it on Gumtree. Sellers face risks in sharing their plans to sell; risk of personnel turnover, losing customers and possibly broken supplier relationships.
Therefore, sellers need to be deliberate in their search for a buyer. For each business, this will be very different. It will take some time to work through this discovery process.
Once a seller has decided to sell, it pays for them to prepare an in-depth information memorandum, a comprehensive sales package of their business. It may include the above details, forecasts, financial data, and the business life story. Many business brokers will write such a document, but the most comprehensive documents will come from the hearts of the owners, so take the time and invest in this process.
Buying a business is a huge decision, and as such buyers are moving targets with their personal goals and priorities. For instance, an owner may believe their target buyer, their General Manager is the perfect successor. But when approached that general manager may be ready to move on or not want to take on the sole responsibility of the business.
It can take a very long time and involve going down a few rabbit holes to find a buyer, let alone moving through the sales process. So be patient.
Gathering a team
This is where assembling a team of professionals to support the sale will make things easier. Having a strong business advisor and connecting with the right business broker to help find a buyer is where you need to start. Also having a lawyer who is commercially competent is vital to achieving a great outcome for your business.
The team at q4 financial has extensive experience selling businesses. We have supported our clients through various types of sales. Our team can assist you in business sale preparation, even if you have just started or purchased or are only a few years away from your selling goals. Contact us to learn more.
