The dilemma of finding a buyer for your business is really one of the biggest hurdles you will ever cross in your exit journey. And, in many cases, it will be the most challenging you will face if you decide to exit without the guidance of a professional M&A advisory firm (this is especially true in the trying times we find ourselves in today). As we have pointed out before, buyers are still active (and will increase their activity over the next few months as the economy recovers) you just have to be able to find them.
When we ask business owners who they believe the most logical buyer for their company is, a few responses are standard:
Now the more realistic and experienced of you probably recognize the folly of each of these options. If you don’t, here are some general guidelines…
Ultimately your buyer may in fact be one of your competitors. However, if you start with that as your only (or primary) option, you limit yourself from creating a limited auction where multiple buyers compete to acquire your company.
Your employees may seem like a logical choice and again, in some cases they may prove to be the better option. A major issue to consider though is this: Do they have the capital available to actually buy the business? This is especially the case in today's environment.
Most often, even if you can get 10-15 employees to agree to do this on a combined basis (and good luck with that), you will usually end up carrying a note payable over the next 5-10 years dependent solely on the success of these new owners running the business. It’s a major risk that you have to be willing to take because there is a huge difference between being an employee and being an owner!
Ah the children option… This can be the most challenging because of familial issues that often arise when you begin to approach your kids about taking over the family business. You must have a very open and honest conversation about whether or not your kids even want to run the company. Do they have the aptitude, skills, or even the desire to take over? What happens to your key employees and their attitudes when you sell to your children over them? And of course you have the same payoff issues and note-carrying risk as you do with your employees.
Many of the business owners we meet with at our exit planning meetings are actually hoping for the "phone to ring" solution because the vast majority have no exit plans in place. So they are hoping for a phone call from a person willing to offer them a massive premium for their company. Unfortunately, when these calls come, they usually are far from premium offers. This is especially true in today's environment where buyers are looking for deals and for sellers with no professional representation to protect their financial interests.
A Far Better Choice
For these reasons we counsel two options: First, hire an experienced M&A advisory firm to guide you through the entire process, including the buyer search and list creation components. Again, this is ever more true today given our current economic challenges. We know that buyers are still active, but you will need professional help to get them to move with any kind of speed and to ensure that your company is presented in the most strategic light given our current economic conditions.
One of the reasons we have been so successful over the years is our huge database of over 34K buyers and our proprietary DealForce app. This allows buyers to tell us exactly what they are looking for in terms of acquisition targets, which we then use to “push” clients to them when we launch deals matching their criteria. And most interestingly, we are getting emails daily from buyers who want to be poised to act quickly once the economy does begin to recover (or even before that happens).
We also augment our databases with buyer searches through our extensive research sources to create an optimal buyer list that targets a wide variety of buyer types, geographies, interests, and sizes.
If, however, you decide to save money and go it alone, you will need to realistically understand that you will not only have to create very attractive, accurate M&A documentation – you will also have to do extensive research to find buyers that would be optimal for your business. You better plan for many hours spent at your local university’s business library accessing multiple online databases. And what business owner has the time to do that with today's business challenges?
It is at this point that most business owners throw in the towel and revert back to the "waiting for the phone call" option, just hoping for the phone to ring. If it does, are you ready to negotiate with the voice on the other end? Do you have an idea of what your company is worth or are you hoping that the person on the other end is willing to pay you a premium?
The good news is that Generational Equity was founded to help business owners successfully navigate the entire exit process and do so in an optimal fashion for an optimal price. We have generated over $5 billion in wealth for our clients and can help monetize your largest asset as well. And we have been successful doing this for our clients during all types of economic cycles.
The reality is the learning curve on how to find a buyer for your business is quite steep. Do you want to be learning while selling your own company and running your business, especially in a time like this?
To learn more about how we can help you find buyers (even during economic challenges), use the following links:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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