- Provable & Timely Books & Records
- Reasonable Price backed up by an Appraisal
- Satisfactory Borrowing Leverage & Terms
- Sufficient Free Cash Flow
- FF&E (Current FMV, Not Overstated)
- Good Appearance & Lack of Environmental Issues
- A Scalable Platform that can be taken to the Next Level
- Real Estate Included (for some Buyers)
- Building Lease (Terms and costs in line)
- Training (By Owner for Appropriate Time)
- A Suitable Covenant Not to Compete
- A Good Reason for Seller to Exit
- Time is of the Essence
- No Last-Minute Surprises
This is an excerpt from our seminar, Planning Your Exit from Business Ownership; one section we spend a significant amount of time on is what business buyers look for when buying a business. At Bankers Advocate, we spend a third of our time representing Entering Clients via a Targeted Search to find them a suitable business. By us having both Entering and Exiting Clients, it gives us a unique perspective into both side’s of a transactions goals and objections.
In the bullet points above, we list what variables make up a typical Buyer’s wants and needs when looking at an acquisition. Of course, some areas are more important than others depending on the type of buyer. But we can readily see a common theme among all classes of Buyers.
Books & Records
Problems with a company’s Books and Records is the #1 reason a business does not sell or sell at a deeply discounted price. Integrity is everything in the business world and if you cannot believe the financials, what other problems are not readily apparent? If the Buyer finds some negative surprises late in the process, the purchase price adjustments can be overly harsh. The transaction value is often attacked well beyond the economic impact of the surprise.
On our initial visit with a potential Exiting Client, we always ask to see the internal financials. Too many times they only hand us the Income Statement. When we request the Balance Sheet, the response is too often the (AR, Inventory, etc.) is not correct and our Balance Sheet is meaningless. They fail to understand that any correction to the Balance Sheet will affect the Income Statement. Also, Borrowing is Balance Sheet-driven. Thus, buying a business is Balance Sheet-driven.
We addressed the Quality of the financials; now let us look at the Timeliness. Six-month-old data does not work for the buyer or their lender. Also, if getting information from the Exiting Party smacks of pulling teeth, trust and credibility quickly erode. If a Non-Disclosure has been executed and the financial viability of the buyer has been confirmed (required), the business ready for market needs to have a complete (sanitized) book ready to move the process along.
Knowing what business buyers look for is essential to build trust and credibility between the Entering and Exiting entities and helps hasten the business sale. If you need assistance with your business exit preparation, Bankers Advocate is ready to help.