What Buyers are Looking for When Buying a Business
- Strong Profits / Cash Flow (the company is managing expenses)
- Recurring Revenue Stream (loyal customers, sales contracts, growth markets)
- Strong Management Team (2nd or 3rd in command can run the company)
- Unique Products and Services (real differentiators, make vs. resell, IP)
- Credibility (goodwill, reputation, customer satisfaction)
The house is in order (clean books, no lawsuits, records are organized, written procedures, premises are clean).
The management team is strong and runs the business. This is where a small business really increases in value.
The business is trending up and not projecting a hockey stick future.
The business is not overly dependent on the owner or any one person. The owner is not the top salesperson.
The business has a strategic growth plan. This has to come from the seller and have substance.
The company hires specialists and is specialized in one or more areas.
There is low hanging fruit that can potentially be converted into opportunities and value enhancers.
The company does not have one customer that accounts for more than 15% of total sales. A rule of thumb.
The company limits large capital expenditures (low capex).
The company has and meets regularly meet with an advisory board.
In summary, buyers buy companies with strong profits, good growth potential and talented employees.
How Buyers Think When Buying a Business
The will pay for the past, consider the present, but buy it for the future.
They will fall in love with the profit but not the product.
They want to buy a good business and make it a great business.
The ingredients are nothing without the recipe.