14 Nov Around the Web: A Week in Summary
A recent blog post from Allen Taylor Mergers & Acquisitions entitled “Do your numbers support the story of your business?” discusses the two ‘languages’ in which the story of your business is told. Being able to tell your business’s story in a compelling way is imperative to attracting potential buyers. However, if the narrative that you tell potential buyers is not backed up by your financial reports, or ‘the numbers’, then you’re going to have some discord during the sales process.
While numbers that reflect difficulty in the business like declining sales or negative earnings can be expensive and difficult to overcome, having financial statements that are simply in a state of disarray can often be fixed. Even before deciding to sell your business, it is best to have books that are:
- Accurate and current
- Detailed enough to show exactly how your business makes money
- Prepared by a credible source
- In a format that is universally accepted and understood.
A recent article from VR Business Brokers entitled “Selling Your Business? Learn to Think Like a Buyer” explains three main things a buyer is looking for in a business that a seller may be overlooking, or have a hard time with.
The first is the cost and terms. A buyer is more likely to purchase a business that allows them to make a smaller down payment and finance a higher percent of the business. On the business owners’ end, having a higher amount of assets will increase the amount the bank is willing to lend for the sale because it increases the amount of leverage they have.
The second thing a buyer is looking for is continuity. While most business owners may have a hard time ‘bragging’ that their business could run just fine without them, from the seller’s perspective they need to know that it will. Having a business that was heavily dependent on the owner’s knowledge, network or loyal employees increases the buyer’s risk when purchasing the business.
Last but not least, buyers are going to look at the growth potential of a business. Again, while a seller may have a difficult time admitting that they did not capitalize on every possible opportunity for their business, many buyers are going to want to know that there’s somewhere new that they can take the business to grow. At the end of the day, a buyer wants to know that they have the best chances possible of making a return on their investment. As a seller, positioning your business to sell is all about appealing to these three important interests of buyers to assure them that your business is exactly what they’re looking for.
A recent article from Chris Mercer entitled “A Problem: Fixed Price Buy-Sell Agreements” explains how using a fixed price buy-sell agreement can cause issues in the sale process. As time goes on, the fair market value of a business can change, and using a fixed price buy-sell agreement does not account for this change. Instead, implementing an agreement from the very start that the business will be valuated once a year until a trigger event occurs, or that once a trigger event occurs a valuation will then be performed is a more effective way at handling this situation.