How To Talk to A Business Buyer- 4 key points

September 22, 2020

 

Your business broker or M&A advisor will set you up with potential suitors to buy your business. That first meeting sets the tone for the entire transaction and can impact the pricing of offers.  For those meetings to translate into closed deals, you should present your company with the buyer in mind.

 

You are rightfully proud of what you have built and most owners want to share their history. Buyers are focused on returns and the future. Adopt their point of view. How can I grow cash flow?  How can I protect against cash flow erosion in the first year? 

 

Here are a few points any qualified buyer will want to discuss. Answer them well and buyers will put honest offers on the table.

 

 

 

  1. Your Role: The buyer knows you are vital to the business. Do you provide unique technical skills? Are the customer relationships with you or the company? Are you actually delivering work to generate revenue? The buyer is trying to understand where they will fit into the future success of your company and if they will need to hire expertise to maintain the business.


    True Story: During a call, the buyer asked: “Tell us about your day.” Our client’s response: “Some days I eat a sandwich and some days I don’t.” Buyers are looking for a little more.
     

     

  2. Your Team: Business buyers are looking to the future and to navigate those open seas, you must have a strong crew. Who are the key employees vital to the company? How will they react to new ownership? Are there any missing pieces that could push the company to greater profitability?


     

  3. Your Customers: Customers and employees are the most important factors in a buyer’s decision. How important is the company to your customer’s business? What are your customer’s near term prospects? How will customers react to the transition? How will you help transition the customers to the post-you company?

    True Story: I was looking to purchase a sign company a few years ago. In examining the numbers I saw that about 25% of the company’s revenue over the previous 5 years had come from one customer’s rebranding project. Neither the owner nor the lead salesman knew how much longer the rebranding project would last or what that customer’s plans were for the coming year. How was I supposed to cover that 25% of revenue? I ultimately changed my offer and the deal fell apart.

     

     

  4. Your Market: Remember, buyers are hoping they can grow cash flow. Who needs your product or services? How can you reach those customers? What other services can you provide existing customers.? What are your geographic limitations? A buyer will pay more for a company with clear growth plans, even if they have not been launched.

    True Story:
    That same sign company had just lost their top sales person. She wanted to anchor in a city 100 miles to the south so ownership let her leave. I was in conversations with her to rejoin the company and build our presence in her anchor city. When the deal fell apart, that possibility was the hardest for me to let go.

Clear, succinct discussions around these four subjects will give serious buyers the information they need to make their offer. If the answers fit with the buyers’ vision of themselves and their hopes for the future of the business then you will have launched a path to successful transaction. If not, you will have saved yourself some time and frustration.
 

 

 

Chuck Harvey, is the owner of International Business Exchange, Inc., one of the oldest, largest and most respected M&A Advisories in the profession. Prior to IBEX served as CEO, COO and CFO’s of Fortune 500 Companies, thriving middle market companies and start-ups.  His extensive financial experience with the public market, private equity and venture capitalists includes more than three dozen buy-side and sell-side transactions on three continents. He is also the found of Infusiac, LLC and The One 21, LLC.

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