Best practices for making your business more attractive to acquirers?

Hi Courtney,

There are two key bits of advice that I give to people considering selling a business;

1) Build as much value into the business as possible. One example of this could be to introduce a subscription based pricing model for services. Why? Because this will produce some semi passive income and sends a message to the prospective purchaser that they do not need to constantly be chasing new customers in order to generate revenue.

2) Make the business as close to a turnkey operation as possible - Document all processes so that prospective purchasers are able to become productive (and therefore generating an income) within as short a period of time as possible.

I came up with a very basic checklist of considerations for my clients when considering BUYING an existing business which may provide you with some insights as to how to make a business more attractive;

Finance;
You need to have a clear understanding of its financial position. This cannot be achieved merely by examining the current year’s financials and what is required as a minimum is access to the last three years of accounts. The main reason for this is that it allows you to identify trends within the business which may provide crucial information. An example of the information that the financial trends can provide include whether the business is growing, remaining static, or… in decline.

Vendor’s motivation;
Why is the vendor selling? You may not get a completely open and honest answer here. It could be for example that the owner wishes to retire or suffers ill health. The vendor may have become fed up and is seeking a new challenge or, the business may be in decline and the vendor seeking a quick exit!

What exactly is being sold?
This may seem a silly question as the answer is “the business” but what does it comprise of? What plant and equipment, inventory, existing contracts, goodwill, resources etc etc.

The Place;
Is it leased or owned? If owned is the freehold included in the sale price? If leased, what are the terms? How long is remaining? What (if any) options exist at the end of the current term? If for example the lease expires in 12 months and there is no clearly defined option for renewal you could well find that you’re having to find new premises less than a year into trading which could have significant ramifications.

Staff;
How many staff are there? What is their status? Are they aware of the vendor’s intentions? Are any likely to leave? How many of the existing staff are you likely to want to retain and if you will be making some redundant are there any severance issues that may arise? If so – who is responsible and how much is it likely to cost?

How much is it worth;
That’s a tough one – How long is a piece of string… I suppose when it comes down to it, the business is worth whatever someone else is prepared to pay. Just how did the vendor arrive at that particular asking price? Remember – the asking price may not be reflective of the businesses true value and there are many commonly used methods that can be used to determine the value of a business.

A few other things…
What is your own motivation? Have you considered the alternatives? Some of these could include;

Simply starting your own business in close vicinity to the one being sold. Depending on a number of factors this may be a much better strategy in that you may force the other business to close through pressure that you exert.

Adopting a wait and see approach – if the business fails to sell the vendor may simply cease trading in which case you could just start up your own business for a fraction of the cost involved in a purchase.

Who are the competitors? How much of a threat are they? What potential is there for growth? Will the vendor agree to sign a non – competition agreement? How much will it cost you to finance the deal and how quickly can you recoup the investment? Do you have a contingency plan in place?

Andy.