At some point in your career, the odds are high that you will need to oversee the sale of a company—many CEOs and business leaders do. It’s no surprise, of course: mergers and acquisitions happen all the time in the business world.
That’s why, whether you are planning for a sale right now or not, it’s a good idea to begin preparing yourself. Preparation and planning, after all, are key to the success of any sale, especially if that sale involves a multi-million-dollar company.
While the entire sales process is highly complex and beyond the scope of this article to describe, there is one part of the process that is particularly important: targeting the buyer. Sometimes, it’s during this part of the process that the purchase will be turned down or crumble altogether due to various factors. So, given how important and delicate this step is, let’s go through four things to keep in mind when targeting buyers for your business.
- Know Your Target’s Motivation
Knowing your buyer’s motivation is key in the targeting stage. Sometimes, an overzealous client might be so ready to sell the company that he’s ready to sell the farm without even understanding the value of the livestock. You’ll be surprised how often there’s more return on investment (ROI) to be had by exercising a little patience and strategy rather than acting out of desperation.
When it comes to targeting buyers, remaining flexible is key. If there are suggestions made to you for some internal changes that need to happen before a sale, don’t be alarmed or discount the advice and move on to an easier option. After the research has been done on potential buyers, you should expect this type of feedback. If you’re willing to make internal tweaks, it might lead to a much bigger return at the sale—one that’s more lucrative than if you had moved onto someone ready to buy as-is.
Speaking of motivation, as you begin to target buyers, remember that they are looking at the overall package. In other words, they are assessing the ROI, the encumbrances, the packaging, and the overall outlook as it portends the potential revenue stream. So, make sure your records and financials position your company in a way that motivates a buyer to bid. Poorly kept files, whether you deem them to be gem-worthy and full of investment potential or not, will neither help the process nor add value, but they will most likely cause delays.
- Don’t Skimp on Marketing
When it comes to marketing your company to potential buyers, being frugal isn’t always the best approach. While it probably yielded good returns as you ran the business, cutting corners when it comes to presentation isn’t smart. I have witnessed the demise of many sales when the seller unknowingly sabotages it at this phase.
Allowing the marketing to be as pristine as the business you have built is the prescribed course of action. You owe it to yourself and, quite frankly, to the potential buyer to offer the best presentation. Don’t be the foolish seller who learns a terribly expensive lesson for trying to save money at the wrong time. Well-packaged and well-presented business summaries will impact the final sale.
It makes sense, right? It’s probably taken years to establish name recognition, cultivate vendor relationships, stake a territory, and claim a niche. And, obviously, time and money have been invested in marketing while running the business.
Why botch it in the end zone? Tell a story that accurately presents the most attractive picture of your business. Move to educate rather than confuse the buyer. Paint a picture that motivates a business owner to make the right purchase.
- Educate Yourself and Use Excellent Counsel
Motivation and marketing are important, but it’s also important to be realistic about the sale. Comparing the sale of the company you’re running to any other kind of sale is an all-too-common mistake. Don’t fall into this trap; instead, compare it to a business that was sold at a similar price by a competitor within the same industry.
Ideally in a successful “run of the mill” sale, multiple investors line up to make a bid. It’s so hot that when the item or entity is announced as “for sale,” bidders can’t bark out offers fast enough. That’s how a transactional sale of a multi-million-dollar business should work as well, with a few major differences:
– How and to whom you target
– How to announce the liquidity event
– The length of time involved in preparing for closing a sale
As opposed to a “typical” sale or even the sale of a small business, there’s no announcement to the public. Instead, there’s a private focus on a list of potential buyers. This is why planning ahead and painting the picture of the ideal buyer is essential. You may have lists of A and B potential buyers based on different potentiality when it comes to their own interests. Doing this sort of scenario-building may prove helpful when seeking out buyers.
- Consider Important Factors
Along with implementing the tips shared above, ask yourself the following key questions
– Do you have any money deal-breakers? Have an optimal dream number? Make sure you stay flexible. Just know your high and low numbers.
– Will the new owner be invested only in dollars or hands-on? Know the deal-breakers before entering into any sale agreement.
– Must the buyer know your product and/or your industry? Marketing your company to investors who are not direct competitors changes the approach. Public market investors generally want to understand your company from the point of view of low, high, or moderate risk. Certainly, they will still want to understand the business as any good investor would, however this type of buyer probably couldn’t give a hoot about the product in terms of running a business or staying long term. It’s purely a financial decision.
Strategic buyers, on the other hand, may be more interested in specific parts of your company, especially if it’s proprietary to what they need or to what they do. You will approach each type of buyer differently and target them as such when it comes to marketing. However, even though your pitch may be slightly different, it doesn’t mean you need to be pigeon-holed into one way only.
– What will your product’s demand on the market be now and one year from now? Know how “in demand” your product is and if it’s likely to grow or if there may be a stagnation or decline. Doing so will allow you to ask for a better price, consider holding before selling, and/or adapt reasonable expectations from the sale.
Loop In Your Team
As you can see, there are many factors and considerations as you move forward with targeting potential buyers. Discuss your approach with your team.Once you decide which option you think is best, make sure to loop in the financial managers as well to be assured that you’re making the right decision for everyone involved. Doing so will protect you and help make this stage of the sale as successful as possible.
Many of my clients realize rather quickly that they know less than they thought about who they should target and what they might garner from a sale. Carefully considering the potential buyer(s) and what you want that final bid to look like will be eye-opening and deeply helpful to the success of the process.
For more advice on how to navigate the sale of your business successfully, you can find Seasons of Selling on Amazon.
Written by Randall Childress.
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