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How to Position Your Business to Be Acquired
Many start their business with dreams of selling or having it acquired. If you are an entrepreneur or have a business idea you want to pursue, you may wonder why you need to think about selling your business at this stage.
Even if you aren’t planning to sell, building your business thoughtfully and with an eye toward making it highly acquirable is an effective way to build a healthy business. Plus, you’ll always be prepared in case an opportunity or desire to sell arises in the future—it’s smart to have an exit strategy.
Many business acquisitions do not work out as hoped. Either the person selling their business gets significantly less than planned, or they are not able to find a buyer at all. An ROCG study of 502 business owners with revenues between $1 million and $100 million found that only 40 percent successfully transitioned their business and only 9 percent had a formal, written succession plan. The primary reason given was poor planning.
Selling a business starts on day one. The decisions you make as you launch your business will impact your decision to sell in three, four, and even five or more years from now. To sell your business successfully and make it acquirable, start preparing and planning right now. While you’re at it, check out business startup checklist download for a complete list of steps to keep in mind while you start your business.
How do you make your business acquirable?
To make your business ripe for acquisition, make it appealing to potential buyers. In sales, it is common practice to present your product or service as a solution to the needs, wants, and desires of your potential customer.
The same approach holds true if you want to make your business more desirable for sale. Once you know the needs, wants, and desires of a potential buyer, you can position your business in a way that appeals to a potential buyer’s motivations. Think of your business as your product, and your customers as the ones who will be buying it and give them exactly what they want.
What do business buyers really want?
Business buyers focus primarily on ROI, or return on investment. To break this down, think about every acquisition or purchase you make in daily life. Maybe you pay a premium for healthy food and you expect a return on your investment, which is good health. When you eat at a restaurant, you expect a good dinner and experience, or a positive return on your investment.
In simple terms, your business buyers will expect a return on their investment, so it’s your job to position your business in a way that gives buyers a real opportunity to earn a strong return on their investment. With business acquisitions, the primary focus of the ROI is money. Buyers want assurance that your business will be profitable in the future.
Most business acquisitions focus on money. Even though many technology-focused startups hope to appeal to a strategic buyer, this is not realistic. Even with technology acquisitions or unique purchases, the company’s ultimate goal is to leverage that technology to drive ROI. There are no buyers who acquire businesses with the goal of losing money.
Beyond ROI
Though ROI is the most important factor in business acquisitions, it isn’t the only one. I’ve worked with dozens of businesses that had healthy earnings, yet they did not sell because they did not have other factors in place.
Let’s take a look at four other factors most business buyers consider before they pull the trigger. Remember, these need to be at the forefront of your mind from day one to effectively position your business for sale down the road. Thinking about them early increases the likelihood that your startup will be profitable either way.
Recent history and trends
Savvy buyers will definitely ask: What has your business done in the months preceding the acquisition? Are your profits trending upward or downward? A business that is growing in revenue and earnings and trending upward will be more desirable to a potential buyer than a business that is declining.
I spoke to a business owner recently who was bringing in $1.7 million in sales revenue. The problem was that in the prior year, his business lost money and fell to $350,000 in revenue. When he came to me, he was hoping to value the business at that $1.7 million mark, even though his profits had taken a recent nosedive. He believed he could get the revenue back up to its former glory, but a situation like this will spur buyer skepticism.
Serious buyers will want to see business stability and growth, and their best indicator will be its recent history. Buyers don’t care as much about potential or opportunity for revenue. They want the real numbers, and if they don’t look good in the present, the acquisition may not be successful.
If you’re unsure of where your business stands (both in terms of your own skill set and external factors), consider doing a SWOT analysis on your business.
Hello!
I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
My career is built on a foundation of helping individuals and businesses thrive financially in an ever-changing economic landscape. At phonenumber247.com, my aim is to demystify the complex world of finance, providing clear, actionable advice that can help you navigate your financial journey with confidence. Whether it’s personal finance management, investment strategies, or understanding the nuances of market dynamics, I’m here to share insights and tools that can propel you towards your financial goals.
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