Risk: the four-letter word that most business buyers loath above all others.
Whenever you buy something, you are taking a risk. Whether it’s something significant like a new home or car, or your weekly trip to the grocery store, you buy with the belief that what you purchase will fulfill your needs.
Of course, the more expensive the purchase, the more effort you will take to minimize the risk associated with it. For your groceries, it could be as simple as checking the sell-by dates. For your car, you would take it for a test drive, read user reviews and interrogate the dealer to ensure you won’t end up in a cloud of smoke on the freeway.
For business buyers, whose purchases could be worth millions of dollars in the middle-market, reducing risk is vitally important. If you are thinking about creating a business exit strategy, be it now or in the coming years, rest assured that professional buyers will assess any risks with a fine-tooth comb. Their attentive due diligence process will expose any concerns in your company – concerns that you might never have even considered.
For instance, say your company's main customer represents 45% of your revenue. Why would that worry a potential buyer? Surely that demonstrates that your business provides great customer service, can forge lasting bonds with clients and has helped increase revenue in the last five years.
But think about this from a buyer’s view – what if the customer has a strong personal relationship with the current owner? Would a change in ownership cause the customer to withdraw, leaving the business with a gaping hole in revenue?
This might not be something you have considered being at the heart of your company’s growth. The support of a professional M&A advisory firm like Generational Equity will help you become more aware of the risks in your business, helping you build a buyer-ready company for your eventual exit.
Certainly, the acquisition of any privately held company carries with it a certain level of risk and uncertainty. Unlike their public counterparts, privately held companies are not required to disclose anything publically and therefore, buyers are relying to a great degree on information voluntarily given to them by a seller. However, based on our years of experience, if you follow the guidelines below, you will make great strides in giving buyers confidence in your company’s future.
To get you started, here is just a small sample of potential risks for business buyers and how you might choose to respond to them.
1. Business Diversity
As mentioned in the example above, focus on diversity in your client and supplier base. Companies that rely on one or two major customers or suppliers raise huge red flags for buyers. They need reassurance that your margins will grow after you’ve released the reins – potentially losing a key customer will damage that.
Top Tip: Create compensation plans that give incentives to your salesforce to regularly reach out to new customers, rather than become complacent on a few contracts for their income.
2. Owner Dependence
We have covered the effects of owner dependence on company valuation in a previous insight. What you need to know is that buyers acquire the future of your business, not what made it successful to this point.
Top Tip: Consider including a period of transition under your direction as part of your business exit strategy. A consultancy role will reassure the buyer that they will have time to understand your approach and continue to grow the business.
3. Financial Reporting
In a buyer’s due diligence process, they will expect to receive in-depth records of your company’s financials, as well as projections for the next three-to-five years. Buyers will be concerned if you display any hesitation over your business finances.
Top Tip: Financial reporting is key to any successful business sale, so we would recommend hiring independent financial advisors to comb over your data to identify any areas to improve before you enter the market.
4. Consistent Revenue
If your revenue is constantly fluctuating, buyers will be concerned. Especially if the buyer doesn’t understand your industry, it can be daunting to not rely on a steady stream of revenue.
Top Tip: Set your sales team to work finding reliable, dependable customers and sign them up to long-term contracts.
5. Future of Your Industry
Do you know what the future holds for your industry? Buyers will conduct their research and will find any potential disruptors to the market that could damage your business in the short or long-term.
Top Tip: Our M&A professionals at Generational Equity have a strong and varied understanding of industries throughout North America, so we can offer effective guidance on when to take advantage of the market to sell your business.
These tips should help you reduce risk associated with your company in the eyes of buyers, bringing you one step closer to exiting your business for the optimal value.
Are you worried about the risks your business presents to buyers? We can help you determine strategies to ease these at our complimentary executive conferences. Held across North America, these conferences provide an in-depth look into the M&A process. It takes just a few hours of your time, but could be the difference between achieving the optimal exit deal and leaving cash on the table.
Learn more about the Generational Equity approach to selling a business on our website, or you can reach us at 972-232-1121. Our professional advisors can answer any questions you may have to help you take the next step on your exit journey.
The information we learn from customers helps us personalize and continually improve your experience at gencm.com. Here are the types of information we gather.
Information You Give Us: We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice. Our computer system protects personal information using advanced firewall technology.
Information from Other Sources: For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Capital Markets LLC may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Capital Markets, L.L.C. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Capital Markets LLC at is office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
INFORMATION ON THIS WEB SITE IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Capital Markets may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Capital Markets does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Capital Markets will be deemed NOT to be confidential. By sending Generational Capital Markets any information or material, you grant Generational Capital Markets an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Capital Markets is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Information Generational Capital Markets publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Capital Markets intends to announce such products, programs or services in your country. Consult a Generational Capital Markets representative for information regarding the products, programs and services which may be available to you.
Generational Capital Markets makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Capital Markets web site, please understand that it is independent from Generational Capital Markets, and that Generational Capital Markets has no control over the content on that web site. In addition, a link to a non-Generational Capital Markets web site does not mean that Generational Capital Markets endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Capital Markets BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Capital Markets.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.