By Ron Coleman
To find the right buyer, you need to know what will make you an attractive prospect. We have previously focused on making your business more profitable and independent of your day-to-day presence, so let’s focus on what the buyer is looking for. As a buyer, you need to know how to evaluate the businesses you review. As a seller, you need to know that you’ll have the right credentials to attract the right buyer and get the best price. Both sides need to set the value above the price. It should be a win/win situation.
Your history of profitability is a key starting point. However, past profitability is not necessarily an indicator of future profitability and potential. Some elements that will help establish future profitability include planned maintenance contracts, repeat customers, and a large database of current and previous clients. Work that is won on the open bid market is not sustainable.
Both parties need to see the potential for future growth and profits. I generally recommend that buyers buy a business with a proven track record. This would be a business where you can fine-tune it to make it more profitable. Buying a turnaround is certainly a lot cheaper but that’s the risk-reward scenario. I like to minimize risk.
Take control
When you buy the business, you are likely losing one of its main assets –— the former owner. To minimize this risk, you need to ensure you have a reasonable transition period with retiring owners and employees and use it wisely. Get to know your customers and your employees. Categorize your customers and employees on a grading scale. Get rid of the Ds as early as possible and consolidate your relationship with the A’s, then work on the B’s and C’s. Lock in your key employees and reassure your customers that they will be well taken care of. The less upheaval, the better.
Buying a business can be very risky. The downside could be severe financial hardship. Don’t fall in love with the employees, customers, location, or products. Stay focused on what the business can do for you financially. There are usually a few key factors that you can bring to the business. You are a fresh mind to the operations. Are you bringing technical expertise, management, IT, or something else? Identify the critical success factors for the business and the key performance indicators. Increase accountability and authority for your employees.
There are usually a few key changes you can make quickly and with little expense. Ask your customers and your employees what’s one thing would you change about your interaction with us. Three musts: explain things in simple terms and write them down, nothing beats a great attitude, and you and your team should be proud of what you are doing.
The flaws
Every business has flaws. None of us are perfect. Hunt them down and eliminate them. Find activities that add no value to the processes and eliminate them (we covered that in a previous article). It is difficult to eliminate steps but the impact on profitability and efficiency will be well worth the effort. The devil is in the details.
Don’t take life so seriously; you won’t get out of it alive! Have fun and make sure your team does also. We spend a lot of time at work, and we should look forward to being part of a successful organization.
As a seller, you now know how to groom your business for sale and as a buyer, you know what to look for and what to do to take an acquisition to the next level.
A complimentary business will be very interested in your database as this is a source of leads for their services. An example of this is a plumbing contractor who buys an HVAC business. As a seller, you should explore how the buyer will gain an advantage by acquiring your database, customers, and employees. Will they relocate to their premises? Will they reduce overhead? Will they gain operational efficiencies? These are all factors that will gain you a greater selling price. As a buyer, these elements will acquire more attractive and lower risk with a greater potential for profitability.
As a buyer, you need to make sure that the customers and employees see the advantages of staying with the business under new ownership. Make sure you articulate to them the advantages and how it is going to become stronger and more beneficial to everyone. Make it a win/win/win environment.
Finally, don’t forget about your suppliers. Suppliers will often find that they get more orders from the business in the future, particularly if both companies are using the same suppliers. Aim for rebates from them. Likewise, look after your sub-trades. They reflect your culture and your attitudes.