Over many years of selling businesses, we have been able to identify some ‘hot buttons’ for Business Buyers. Whilst these are not applicable to every business, at least some of them could be applied to all businesses.
1. The Numbers: Buyers are naturally going to focus on ‘the numbers’. In an ideal world the seller will be able to show a straight 3 years solid growth, increasing margins etc. Meanwhile, in the real world, there are measures that sellers can take to make the best of their numbers. Firstly, by looking after the balance sheet, for instance by sensible use of borrowing, carefully calculation of dividends to avoid drawing on reserves and a general focus on being able to sell a solid balance sheet. Similarly, the presentation of Trading Accounts can be extremely important – it needs to be made as easy as possible for buyers to identify the underlying performance of the business. Bear in mind that buyer's are interested in the future more than the past - see point 4 below.
2. Systems and Reporting: Even if the numbers are not all that sellers would want them to be, it is vital that the financial systems and reporting are ‘up to scratch’ as far as possible. This means that there are reliable, reasonably accurate management accounts available on a regular basis and that key information, such as stock value, debtor book, forward orders, capacities etc can be produced easily.
3. Customer Contracts: This is another ‘ideal world vs reality’ point. Few businesses, these days, have contracts with customers. However, buyers always worry that within months of purchasing a business, any customer not on a contract will be gone! Therefore, sellers should try to provide as much comfort as possible to buyers on this point by, for instance, being able to demonstrate customer loyalty, low churn rates, schedules, testimonial letters etc.
4. Forecasts: Most sellers hate forecasts but buyers love them! Forecasts are a necessity because buyers are, essentially, buying future cash flows. Sellers will say ‘how should I know what is going to happen?’ but the truth is, that they are in the best position of anybody to prepare forecasts. It doesn’t have to be very detailed or sophisticated – for smaller businesses, a trading account for the current year and the next will usually suffice.
5. Management Succession: For larger businesses, the vendor should be able to demonstrate how his/her departure will be covered by other members of the management team. For smaller businesses, this is often not practical because it would mean that the business is carrying too much management overhead. It is worth bearing in mind, as well, that the buyer may have people he wishes to ‘parachute in’ or he may intend to manage the business himself. In these instances the seller can help buyers by, for instance, having a clear and workable handover plan, being able to identify people in the organisation who could be promoted, if required, documenting key processes, relationships etc.
Business owners should find that their accountants and other advisers will be able to help them in a number of these areas. In any event, please contact Anderson Shaw as we are always happy to provide advice to owners, who are thinking of selling their business, at any stage in advance of the sale.