Sell your Business E-Book Extract Part 9 – Finding A Buyer

Posted on Oct 6, 2015

When business owners were asked about likely exit strategies for a CPA survey, respondents said that twenty five per cent would prefer to sell or pass on to a child or other family members, 26 per cent expected they would advertise the business for sale without identifying a buyer, 17 per cent expected to liquidate the business and 19 per cent considered a trade sale to someone in the industry as their most likely option. Only seven per cent favoured a sale to management or staff.

 

The Elusive Strategic Buyer

The vendor needs to “spread the net” as widely as possible when looking for a strategic buyer who will pay a high price for the business.  Strategic investors may already be active in the market so it is worth watching what competitors are being sold for.

Many newspapers list various types of businesses for sale in their classified section. Advertisements can contain as much or as little information about the business as the vendor wishes to disclose. The aim of mass market advertising is to direct interested parties to a contact telephone number or address for the purpose of making initial enquiries.

Vendors should identify key people within an industry who may be useful in letting potential purchasers know that a business is for sale. Targeted advertisements in trade association journals or newsletters will reach those operators with experience and interest in running a similar type of business.

When putting together information for a prospective buyer, include what you think is relevant and convincing, but keep in mind that confidential information may end up in the hands of competitors. It is important that at all times vendors are honest with prospective buyers.  If there are negative aspects to the business, it is better to be upfront about them rather than have secrets come out during the due diligence process.  A savy buyer will not only check obvious areas of hidden problems but less obvious things like investigating a WorkCover claim record.

Other ways to source potential buyers are trade and press yearbooks, directories, The Yellow Pages, market surveys from organisations such as IBIS and the Internet.  Don’t discount direct competitors, suppliers and existing strategic partners.

Remember, with a strategic buyer you are not just selling a business but also a vision for how the acquisition will strengthen the buyer’s existing business.  It is often successful to pitch the investment within the context of wanting to sell to someone who can take the business to the next level.

Sometimes an investor will buy a business that is an extension of a hobby.  In this case research what industry publications are widely read and consider using them as a way of communicating with potential buyers.

Business Organisations

There are many industry associations that can provide leads for a buyer.  Given that the most buyers come from the same industry that the business operates in, it makes sense to network within that industry.  This is also a way for the vendor to keep abreast of market and industry trends.  Some associations also provide advisory services that can be accessed during the sale process.

Understanding Decision Drivers

Close to experience

People want to work in certain industries.

Low Risk

Any purchaser wants reassurance that the business will continue to make money.

Ease

Ease with which the business will be able to generate income

Super Growth

The ability of a business, with the right management, synergies or resources, to grow at an accelerated rate or improve profits at an accelerated rate.

During negotiations, a vendor needs to anticipate where the buyer is coming from. The seller needs to address all the questions and concerns that a prospective purchaser may have, to show that the business is profitable, has potential and that the sale price is fair.

Confidentiality Concerns

Another issue that arises once negotiations commence is that of confidentiality.  A vendor may decide it is appropriate for potential buyers to sign a confidentiality agreement before the due diligence process begins, however this does not always mean all matters relating to the business will remain private.

It appears that with the growing number of businesses on the market, people are developing a more open approach to selling.  Increasingly people are accepting that any business is on the market for the right price.

The identity of a vendor can be masked by the use of an advisor.  The use of a third party also allows the fundamentals of the business opportunity to be widely promoted whilst maintaining anonymity.

A vendor also needs to make a decision about how much he or she wants to tell staff members about a possible sale.  This is a complicated issue with valid arguments on each side.  If staff members feel insecure in their employment they may leave.  However, staff have a curious way of picking up on the fact that changes are afoot, especially at the due diligence stage of a sale.  It is up to each individual owner to decide to tell, when to tell and how much to tell employees about the sale.

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