Prepare to think like a buyer

July 9, 2018

 

As we have reviewed before, Business Exit Planning is a journey with many factors to consider. Once you have completed the assessment and any necessary improvements, marketing and selling your business is the next phase.

 

The Smaller Business Buyer

 

When selling your business, it may feel as the process is intrusive and unnecessary. The reality is that prospective purchasers will want to understand your business inside and out as they want to know what they could be getting into.

 

Place yourself in the shoes of a buyer looking to purchase a café or small shop, this may be their first business venture and understandably they are nervous about risking their money investing in a perceived risky area.

 

With the nervousness comes a long list of questions that will need to be answered and in a timely manner. Without timely answers, the risk of a sale falling through rises considerably. The general questions this type of buyer focus upon are:

  • Details of the lease, term, renewal & break clauses

  • Staffing contracts, hours & wages

  • Details of your costs

  • Supplier relationships

  • Customer demographics

  • Opportunities to grow

 

It is therefore important that you understand these areas well in advance of going to market with your business sale. When I speak to potential clients, it is surprising how many do not know details of their lease and yet, this may be the single biggest expense item they have. When sellers do not have this information readily available, it makes buyers nervous as they wonder if there is something to hide.

 

Once you have placed your business on the market, it is imperative that it is “show ready” at all times. Be mindful that the customer you have just served may be the potential buyer who is acting as a secret shopper!

 

The Professional Buyer

 

Generally, when dealing with a professional acquirer they will already have a list of ‘objective’ questions about your business. The following are some of the most common that you should be able to readily answer or provide relevant documentation on. It is also important to remember that depending on your industry these questions can vary but these are some of the most general.

 

  • Is the intellectual property of your products protected with patents etc?

  • How secure is the revenue stream and how much is recurring?

  • How involved are you personally with servicing your major customers?

  • Are all of your contracts complete and up to date; this includes not only customers but suppliers and employees.

  • What are the loan conditions on your current credit or lease agreements?

  • Are all of your operating licenses up to date? (e.g. IT Software)

  • Do any or your key business assets need replacing?

  • What is your cyber protection policy and is your IT up to date and secure?

  • Is your compliance up to date?

  • Does your business or you have any current legal action pending and if so how will this affect the state of your business?

 

As you can see, no matter what type of business you own and operate, being prepared is key in the process of selling your business. The better prepared the business is, the smoother the process can go. If you are considering your Business Exit Plan, contact us to today so we can begin helping you with you journey.

 

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