05 Dec Around the Web: A Week in Summary
A recent article posted on BizBuySell.com entitled “2017 Buyer-Seller Confidence Index: Rising SMB Prices Weigh on the Minds of Both Buyers and Sellers” summarizes their recently released study, which is a national indicator of small business sentiment in the current business-for-sale environment. Overall, the study showed that both buyer and sellers are less confident in the market this year compared to last year.
Although seller confidence dropped, business owners said they are confident they would get an acceptable price if they sold their business today. On the other hand, the study had mixed results regarding the values of businesses in the future, showing that many business owners perceive a pricing plateau with no value increase or a decrease in value of their business.
Buyers continued to show low confidence in the market, most notably because they believe that asking prices will increase over the next year. This could change though, with the increase in activity that is expected due to the retiring Baby Boomer generation.
A recent article posted on The Standard entitled “Do you have a business you are eyeing? Consider these tips before taking the leap” explores a variety of factors to take into consideration before buying a business. Here are some things to think about when making the decision to buy:
- Evaluate yourself and make sure you have the skills to take on the specific type of business
- Find out why the business is being sold
- Carry out due diligence in screening the business so there’s no surprises along the way
- Obtain a professional valuation of the business
- Close the deal and consider using a legal officer for the final process
Always be sure to find out the good and the bad before you decide to purchase a business.
A recent article from the Axial Forum entitled “How to Handle Risky Customer Concentration in an M&A Target” explains the best practices to follow if a potential acquisition has a lot of customer concentration. In many companies, it’s common for the top 20% of customers to account for 80% of the company’s revenue. In this case, it is vital to talk to multiple people within these important accounts and ask a variety of questions to make sure you find out how their relationship with the company is really structured.
Most importantly, you want to ask the contact how likely they would be to recommend the target company to another colleague, which in turn will help you determine the Net Promoter Score (NPS) rating of the company. The NPS is very useful because it has statistically shown that higher rated companies are more profitable, outpace their competitors, and have stronger cross-selling opportunities.
It’s a good practice to look deeper into a company’s relationships with its customers when acquiring a business that you’ll want to eventually grow.