There are many steps to selling a business. At Generational Equity, part of the Generational Group (Generational.com), we work methodically through each stage of the sales process to achieve our clients’ acquisition goals. A pivotal part of this process involves making a business ‘Buyer Ready’. Management guru Peter Drucker once said, “The buyer rarely buys what the seller thinks he’s selling.” This indicates that the features of your business that you think is the strongest selling point of your business may not be so to the buyer. Understanding a buyer’s mindset is key to achieving a successful sale. There are a number of things that buyers look for when analysing acquisition targets, these fall into three categories:
• Internal Preparation – Has the seller positioned the company for sale?
• External Orientation – Has the seller created a culture that looks outwardly?
• Sustainable Future – Has the seller anticipated the future and its changes?
Sellers should pay close attention to each of these elements when preparing their business for sale as these are critical to giving buyers confidence that the transition will be smooth when the owner exits the business.
It’s easy for business owners to become solely focused on the everyday operations of their companies, in doing so they often forget to develop strategies for their eventual exit. Ignoring internal preparation for your exit will put buyers off when it comes to your sale. These are just a couple of things you should be doing when making your business ready for a buyer.
Develop a solid middle-management team
Be sure to develop managers who can easily step into your shoes when you choose to exit your company. Finding an effective middle-management team who have the skills, drive and aptitude to show that the business will run smoothly once you are gone will give buyers confidence to invest.
Document what your company does well
As an expert in your company’s operations, it can be easy to forget that buyers are not yet on the same level of understanding. Developing operational documentation that shows what your company does well and what is unique about the process will help the buyer to see the expertise they are investing in.
A business that is ready for purchase will be continually evaluating where they stand in relation to their external environment. Your evaluation of the outside world must take into account where you are today and where you need to be in five years based on ever-changing circumstances. Your business can become ready for a buyer through ensuring the following.
Know your market position
Is your company a market leader in a strong position, or are you a smaller company with a lot of room for growth? A buyer ready business will be able to define their position in the market. Both have their pros and cons to different buyers but businesses that are ready to buy will be constantly evaluating these questions.
Who are your customers now and in the future
Businesses that are ready to buy will regularly review the needs of their customers and analyze how effective they are in reviewing their current and future needs. They anticipate how the customer’s needs will change and plan accordingly.
Developing a brand that identifies you
Buyer ready businesses will have name recognition in their market (and a reputation that follows). It takes years and years to develop a recognized brand and businesses that are ready to sell will have been doing so from day one.
Buyers aren’t acquiring your past, they are buying your future. They are looking for signs to show that your future earnings can be grown beyond internal projections. A buyer ready business will know this and document plans to create growth.
Develop revenue streams that are recurring
Businesses that are ready to be sold look for revenue streams from guaranteed contracts, long-term customer relationships and product uniqueness to sustain their growth. Buyers look for revenue that will exist after the owner departs. Develop those sources of revenue and document them.
Assess and insulate your organization from future threats
Constantly scan the horizon to determine where the next threat to the market, industry and organization may come from. The more you can make your organization, products, and processes unique and innovative, the better you will be insulated from future threats. This will give buyers an added layer of confidence in the future.
Diversify your customer and supplier base
Having too much revenue generated by one client will be a concern to potential buyers. Be sure to look for new clients all the time. Similarly, you may find it convenient that most of your materials come from a single supplier. Buyers will be looking for a solid supply base that’s not overly dependant on a particular source or region.
Promote and reward your best innovators
Look for the innovators and risk takers in your organization and reward them for their ideas. Buyer ready businesses have a body of innovators in their midst that buyers will appreciate.
Owners of businesses that are ready for sale know exactly what buyers are looking for because they have been preparing their organizations to be buyer friendly from day one. If you decide that you want to exit your business, you need to make it ready to buy before you even think about that decision. To prepare your business for sale, you must position the company for sale internally, create a culture that looks outwardly and show that your future earnings are solid. By following these guidelines, you can be on track to creating a buyer ready business.
To find out more about how to make your business ready to buy, download Generational Equity’s free whitepaper ‘Building and Exiting a Desirable Business’ written by Generational’s President, Ryan Binkley.
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