If You’re Exiting Your Business, Selling to One of These Types of Buyers May be the Best Decision You Make

Contributor Adam Coffey

Contributor Adam Coffey

Centurica.com offers premium due diligence for web-based businesses and SMB.

The following is adapted from The Exit-Strategy Playbook.

Selling a business for maximum value is an art as much as a science. And, while everyone knows about the “science” part of it—the financials, the revenue projections, the sales comparisons—for many entrepreneurs, the “art” of it is more elusive.e UK´s leading platform to buy and sell a business

If you can nail it, though (and you can, because I’m going to walk you through what you need to know to succeed), you can show potential buyers that your business is right for them. And the best way to do that is with a well-orchestrated story that shows buyers why they absolutely need your business.

The goal is to anticipate their questions and weave your answers together in a way that will resonate with them. You want them to hear your story and immediately feel like they’ll be able to quickly and smoothly grow your business. Because if you do, you’ll have buyers fighting to pay top dollar for your company.

Will You Stay or Will You Go?

Let’s break each piece of your story down into individual sections. The first part—and one you should get clear on as soon as you start thinking about selling—is identifying your personal goals for the future. This will help you figure out what kind of buyer to target, and it will help buyers decide if your business is a good fit for them.

If you’re in your mid-40s or mid-50s, you probably don’t intend to retire, so you will most likely be looking for a financial buyer or a strategic buyer that does not plan to turn the lights off so you can continue working in the business. What drives you to sell is a desire to diversify your empire and create a protected hedge for retirement.

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If you are older and don’t want to continue running the business, you might be looking for a path out. But just because you’re ready to retire doesn’t mean you need to leave the business altogether. You can become a rollover investor, a consultant, a part-time employee…many options exist with a potential new owner.

Succession Planning and Team Development

Most financial buyers of a business aren’t buying the business—they are investing in you. They are buying your relationships. They’re buying all the hard work you put into your business over the last two or three decades, and unless they are a strategic buyer looking to turn the lights off, they really don’t want you to ride off into the sunset.

They fear what happens if you walk out the door. Will the clients stay? Will the revenues remain? Will the earnings they are paying a multiple on still exist? Will the employees stay? They are most fearful that the business they are buying is a house of cards and when you exit and close the door, the wind will knock it all down into a pile of rubble.

If you plan to retire, you need to start thinking about succession planning and team development. If there’s nobody to stay on—a family member or a strong second person—a buyer will view this as a large risk. Buyers don’t like risks! They want to purchase a sure thing. So it’s important to spend time thinking about the story you’re going to tell.

It doesn’t matter if the buyer is strategic or financial—your story needs to be about long-term growth. You need to be able to discuss the sustainability of the business and its revenue streams, even if you depart.

Your Organic (and Inorganic) Growth Trajectory

The next part of your story is the growth trajectory of your business. You will need to present the business as it stands today and the potential growth. “We’ve been growing at an average of X percent, and earnings have been growing at Y percent. As I look at the next five years, if I had a partner and additional capital, here is how I could accelerate that growth, bend the curve, and attain new heights. I could expand into new markets, add this product line, etc.”

If you have a financial buyer, they are going to be looking for a compounded annual growth rate (CAGR) of 24 to 27 percent. How are you going to do that?

In my career running mature B2B service companies, that equates to getting organic growth into the high single digits, adding in a few points of margin improvement, and then using buy and build as the central growth strategy to punch it up to the high 20s. If you are lucky enough to be growing organically at a sustained rate in the high 20s, your story will be dramatically different from mine.

All buyers are paying a market rate for your company, and in order to get an outsized return on investment, they will need to figure out how to accelerate your growth. Build a story around those levers of growth that will get them excited so they potentially pay more for your business than they would for someone who has no idea of their needs or growth plans.

Growth and Scalability Potential

If your buyer is a financial firm, they’ll be looking to accelerate growth, and for that, they’ll need a platform that can scale with efficiency. This is accomplished with process simplicity and repeatability coupled with technology.

Think about the software platforms you run the business on today. If the company doubled or tripled in size, could your existing systems handle the increased volume? Where are the bottlenecks and choke points that slow you down today? Identifying and developing a plan for addressing them will help your buyer gain confidence.

If your buyer is strategic, hopefully they will bring their systems to you. Be inquisitive and show some enthusiasm about the potential for change. Be willing to engage in discovery around ways the strategic buyer can help you gain a more efficient and scalable platform from which to grow.

You may not realize this, but in fact, everything you say and do—your facial expressions, attitude, and enthusiasm—is being cataloged by the buyer universe. The more you demonstrate passion for your business and an openness to truly partner, the more points you put on the scoreboard with them, and the more likely it is that you’ll achieve maximum value.

The Business Must Survive and Thrive

The story you present is critical to a buyer because they want to see how your business will survive and thrive. Whether you stay or go, whether you are hit by a truck or win the lottery, how will the business survive? When you align your thinking with the buyer’s needs, you’ll be far better prepared to handle an actual emergency, and you’ll be valued higher by those financial or strategic buyers.

By knowing this information up front and being able to present it quickly and accurately, you show that you are an educated seller. Buyers generally reward that by giving a higher valuation than they would to a seller who has not done this work.

The key is to think strategically about how you could alter your business to be even more successful. Build a business that caters to the future universe of buyers and plays into the strengths of what they’re seeking to buy, and make sure you craft a story that will show people what you’ve done.

Hope you liked the article !

Sebastian Amieva

www.sebastianamieva.com

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