Prepare for Your Exit When You Launch Your Business
You’ll often hear business brokers and M&A advisors say that the right time to prepare for your exit is when you first launch. By that they mean that it’s important to always be thinking about how to optimize your business so that it is streamlined for an eventual sale. Some of the savviest entrepreneurs and business owners are also thinking about partnering with those who will ultimately want to buy their businesses, even if the prospective sale of their business is many years away. It is easy to see why so many top-level entrepreneurs feel this way, as it is prudent to plan for the outcome you want from the very beginning.
It Pays to Think Ahead
The simple fact is that in most endeavors in life, it pays to think ahead. Selling a business is no exception. The rate of businesses that are being acquired is rising significantly. In a recent study at the University of Maryland, researchers found that in the last three decades the rate of venture capital-backed startups that have been acquired has soared from 10% to 90%.[1]
Anyone building a business should build that company in such a way that it will be appealing for acquisition down the line. Thinking about who the ideal buyer might be will help you to properly shape your business operations.
Many owners have an eye on businesses that work to serve similar markets. You may also want to think about how your product and your business model work to address an overlooked need within the existing customer base of that larger entity. If you can clearly show that acquiring your company will instantly lead to new business, then much of the battle is already won. By finding customers that a business is overlooking, you have positioned your business to be an attractive target for acquisition.
Have a Success Oriented Strategy from Day One
In short, company founders must understand their customer, their product, and why a customer will want and need what they offer. Being able to attract the right talent is also important. If a successful staff is firmly in place, your business will be far more attractive to potential buyers.
Understanding from day one the path of your startup and where you want to go will make all the difference in your success. It is important to remember that it is much easier to build an acquisition friendly company from day one than it is to retrofit your existing company years down the road.
1. The Great Startup Sellout and the Rise of Oligopoly
Copyright: Business Brokerage Press, Inc.
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How to Achieve High Buyer Success Rates
Both buyers and sellers have a lot of emotion wrapped up in their respective decisions. It’s completely natural to feel that way. Business Brokers and M&A Advisors can assist clients with their concerns and fears by giving them more information about how the sales process works and also discussing common pitfalls to avoid. In this article, we’ll go over some of the various issues impacting buyers. If you are able to anticipate potential issues that could interfere with the deal, you’ll be more likely to be able to overcome those issues.
The Initial Intake Process
Buyers should understand that they will need to sign an NDA and treat the non-disclosure process seriously. Brokers representing a seller will be requiring a good deal of information, including financial details, and often even your resume. So don’t be surprised when you’re asked for this information. It’s all a normal part of the process.
The Lending Process
It’s important to realize ahead of time that the lending process can be slow. It is also very common for lenders to ask for more and more information before the approval goes through. If this happens to you, don’t panic or worry. This too is a standard method of operation.
Working with Lawyers
While lawyers are obviously necessary in the process of buying and selling a business, they can also be a source of anxiety. In their efforts to protect their clients, they also can often kill a deal. Of course, get the facts and logistical information that you need from a lawyer, but always remember that lawyers and other business advisors are not the decision makers. If you’re buying a business, the decision is ultimately yours.
The Non-Binding Offer
A non-binding offer allows both the buyer and seller to walk away from a deal if terms cannot be agreed upon in a set amount of time. A non-binding offer shows the seller that the buyer is interested in acquiring the business, but this form of agreement isn’t legally binding. The benefit of the non-binding offer is that it allows discussions and negotiations to move forward.
The Due Diligence Process
The due diligence process is another aspect that allows the buyer to move forward, while simultaneously having protection. At this point, the buyer will receive confidential and sensitive information about a business, such as the financials, inventory, and legal matters. Buyers will also have the ability to conduct additional research and ask the sellers questions. Like the non-binding offer, the due diligence process also means that you have the right to walk away. It is important to have this step available so that buyers can make the most informed decisions possible.
Business brokers and M&A advisors are essential in order to help buyers find the best fit. We not only save our buyers time and energy, but we also help to ensure that the transaction goes as smoothly as possible.
Copyright: Business Brokerage Press, Inc.
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The Different Buyers You Might Encounter
If you’re selling a business for the first time, you might have a preconceived notion of the type of buyer that’s most likely to purchase your business. However, the truth is that sellers often get competitive and attractive offers from buyers that they were not expecting to have an interest in their business. Let’s take a look at some of the variety of buyers you might encounter on the path to selling your business.
Your Family Members
One common buyer would be a member or members of your family. One of the advantages to selling to family members is they already may have a deep understanding of what it means to own and operate your business. As a result, they may feel more prepared.
On the other hand, just because someone is your family member does not mean they have the chops to actually run your business. Further, if you sell to a family member, you may end up dealing with someone who has less cash available to buy.
Competitors and Synergistic Buyers
You may not have warm fuzzy feelings towards your competitors, but the truth is that you need to be open to the idea of receiving offers from them. In fact, many competitors immediately look to their competition first when they decide they are going to expand their business. Your competitors make a lot of sense as good candidates because they understand your industry. Purchasing your business represents a viable way to rapidly expand their own offering with products and/or geographical reach.
Along similar lines, synergistic buyers acquire new companies in order to leverage their existing operations. You will find these buyers are typically larger entities in the same or related industries. In buying your business, their goal is to support and quickly add value to their current organization.
Individual Owner Operators
Many sellers end up with a deal on the table from an individual buyer. There are definite advantages associated with this type of buyer including the fact that it can streamline the sales process when you are dealing with one person rather than a group. Individual buyers oftentimes have corporate experience that helps them to effectively take over and manage a business. Another advantage to the individual buyer is that he or she oftentimes has a personal interest in the business and plans to successfully operate and improve it.
Financial Buyers
A financial buyer is most interested in their ROI. They will zero in on finding out about the cash flow and long-term exit strategies. These investors are typically only interested in very solid companies that are generating solid revenue. They will be less likely to want to take the time to make changes and improvements, so they will expect healthy returns on their investment on day one.
Your business broker or M&A advisor will help you understand the pros and cons of various buyers when it comes to your unique situation. Ultimately, you’ll find the type of buyer that is best suited to buy your business and that fulfills your needs and goals simultaneously.
Copyright: Business Brokerage Press, Inc.
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