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What Buyers are Looking For in a Small Businesses for Sale

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By: Brett Pittsenbargar
How entrepreneurs can prepare to sell their business. The best time to sell a business is while it is growing. This allows you to sell into the promise of a bright future. If you lose that big contract or have a supplier that goes bankrupt or have a federal regulation hamper your ability to do business - all that value may start to crumble. Addressing a few blind spots can allow an owner to double or triple their revenue, often in a short period of time. People call it "growth hacking," but for us it's simply pointing out the most elegant way to achieve an ideal exit. Starting with the end in mind. That might be growing via consultant, partnership, outright sell, or IPO. We partner with passionate professionals who buy & sell individual and portfolio businesses. It's our focus and we've gotten exceedingly good at it. This is the most important transaction of your life. You need to work with superstars.

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What Buyers are Looking For in a Small Businesses for Sale

  1. 1. What Buyers are Looking For in Small Businesses For Sale
  2. 2. When seeking buyers for your small business, your enterprise will be scrutinized in terms of its track record, liabilities, reputation and prospective profits, just to name a few. When you are caught unprepared, you run the risk of having no buyer in the end. Buyers are more than eager to visit and ask you a lot of questions about your business. This is just the start of the due diligence. In addition, they will weigh the pros and cons of buying your business along with your strengths and weaknesses against your competition. What are the top factors that buyers look for in a small business that’s for sale?
  3. 3. Reason for Selling the Business Buyers should realize the real reason why you’re getting into a deal. This helps them form a solid reason why they have to buy your business. Are you selling because you need to support your lifestyle, or is there an immediate expense that you have to finance? Are you a baby boomer who’s soon going to use the proceeds of the sale to fund your retirement? Or has the 24/7 demands of your business already took its toll on you? Could it be that the seller is offering a purchase price that is just too hard to resist?
  4. 4. Business Performance A business that is at the peak of its lifecycle is what usually sells first. The higher earnings can attract buyers who want a good return on investment. They can take advantage of a strong client base and a business that is in good financial health. This means that the new owners will not have to worry about inheriting high debt ratios, falling revenue stream, rising expenses and falling cash balance.
  5. 5. Right Timing When the economy is doing well, businesses can be attractive to buyers with large financing to purchase enterprises. Small businesses, most especially, face stronger competition in the industry during favorable market conditions. To evolve together with current economic conditions would entail higher risk of losing out. Thus, with prospective buyers who can continue running the business, a sale is most likely to happen. Contrary to most sellers’ beliefs, selling a business can also be profitable in times of recession. When employees are laid off from their jobs and can’t find a job, entrepreneurship is a better alternative after being forced out of the company. It’s the perfect opportunity to be their own boss and pursue their dreams of liberating from the corporate world.
  6. 6. Liabilities Your existing liabilities can influence a buyer’s decision whether to make an asset purchase or stock purchase. With the former, the buyer will not be liable for the business’ obligations, debts and liabilities. This would mean that the business will be likely sold at a higher price though. In a stock purchase, on the other hand, the buyer acquires all obligations, liabilities and debts at the time of the sale. It includes known liabilities such as a business loan and unknown liabilities such as money owed to suppliers. Certain liabilities may also arise after the sale such as product liabilities (lawsuits from defects) or employee liabilities (nonpayment of incentives and health benefits).
  7. 7. Reputation Nowadays, poor customer experiences and corporate mismanagement are easily made known to the public with a click of a button on social media. A tarnished reputation will therefore hurt your business’ chance of being sold. As they say, your business reputation has an impact on what you do and is impacted by what you do. Sellers can easily come across bad online reviews, discover negative feedback and hear about employee complaints. Furthermore, it takes a lot of money and effort to revive a brand from the devastating effects of a corporate crisis. However, take note that a business with weak image can be a bargain in the market. This is because existing owners feel the immediacy of relinquishing the enterprise to avoid further damaging the reputation.
  8. 8. Customer Base An established customer base makes it a lot easier to bring in more customers. In addition, having gained their loyalty while continuously generating new leads reduces the efforts of building clients from scratch by the new owner. Think about the time saved preparing for sales meetings, creating pitch decks and publishing marketing collaterals! Buyers are attracted to businesses that have gotten to know their customers’ needs well and offer superb customer service. Furthermore, the new owner can easily gain the trust of customers through long- term connections established by the former management.
  9. 9. Management and Staff When you have an existing management and staff that are not dependent of you when fulfilling their roles, the transfer of ownership will be much easier. It is important to set their expectations right from the start while keeping some things confidential to avoid unnecessary panic. Prepare them for the transition by discussing the changes that will take place and how will they benefit from it. The last thing that a new owner would like to deal with is a group of disgruntled employees not certain about their future in the company. Furthermore, their plans to stay with the business for the next few years may change once the turnover has been completed. Try not to lose your critical employees by offering employment agreements. Finally, make sure that each staff has his or her role fully documented so that the new owner can identify if new adjustments to staffing are needed.
  10. 10. Location Businesses that are easier to find, are near major traffic routes, and are easily accessible by employees that hate long commutes are great attributes when selling an enterprise. Furthermore, an industrial space that is strategically located can reduce shipping costs and improve its appeal to suppliers. While an office space in the metro is a magnet for top talent, customers and clients, sellers might have to look into the cost of rent you’re paying. For online businesses, however, the fight for ranking on top of search engine results is the equivalent to occupying the right physical location of one’s store. Buyers are impressed with businesses that utilize location-based SEO to further improve local marketing strategies.
  11. 11. Competitors Your competitors will always remain fierce and aggressive. Your potential buyer will compare your performance against them and how you kept ahead of the competition by targeting new markets, looking after your loyal customers, and stepping up your marketing strategies.
  12. 12. Future Plans Buying an enterprise means that you’ll get what you’d paid for. Although buyers are aware early on in the sales process of this, significant changes for the business may be necessary in the near future. This is needed to fix existing issues in the organization, settle liabilities, or expand the business by infusing fresh capital. When you propose your growth plans, a buyer will be more interested since you’re still showing interest in furthering the future of the business.
  13. 13. Business Value Your business’ value will depend on a number of factors such as your type of management, customer base size, cash flow health, supplier relationships and financial performance, to name a few. Take note that it will also include the business itself being dependent on the owner. If the business can survive without you, a higher business valuation will be set, which will make it easier for the transition.
  14. 14. Final Tip With proper preparation involving these factors, it is also important to let the buyer fully understand that what you are selling is not just a business but a future where the opportunity of making more money is having a fulfilling long-term entrepreneurial career. Buyers will evaluate every aspect of your business and make sure that these are favorable to their terms before committing to purchase. More than expecting a 100 percent ROI so the business can eventually pay for itself, buyers are eager to grow the business’ value overtime while making sure that the product or service being provided is relevant and continues to be in demand. With this, working with a direct buyer has more advantages than entrusting your business sale with a broker. Growth Point Holdings works with entrepreneurs to achieve remarkable results, whether that’s exponential growth or an exit event. Get your free business evaluation score now with our Value Builder System at: https://score.valuebuildersystem.com/transphorm-llc/brett-pittsenbargar
  15. 15. Brett Pittsenbargar is a savvy business investor and turnaround strategist dedicated to assisting business owners reach their objective at every growth phase. With a background in business development and investment experience, Pittsenbargar understands that business is much more than written contracts, it is about the people working every day in the business that matter most for small and medium sized enterprises generating $1-5 million in revenue annually. He invests in, mergers and acquisitions, growth partnerships, cash out purchases and adding shareholder value. Consult with a seasoned business investor that has decades of experience helping small and mid-sized businesses. A business strategist who can work directly with you in developing exit strategy plans, partnering growth partnership, building shareholder value and organizing mergers is critical for your business. Contact Growth Point Holdings today to arrange a one-on-one consultation with a dedicated business strategist to start building a synergistic long-term business relationship together. Disclaimer: This article is intended to give you general business information, not to provide specific legal or financial advice. Be sure to consult your attorney, accountant, and financial professionals for any specific questions relating to your business.

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