Big Business, Small Business – It Doesn’t Matter….
When Selling a Business – Understand What a Buyer is Really Looking For – Does Your Company Have It?
The Acquisition Formula all Buyers Apply:
P + P + M = D
People + Product + Market = Deal
It works every time!
Mr./Ms. business owner, if you have accomplished People helping operate your company, produce a best in class Product or service, enjoy a well constructed position within your Market – then you have a Deal to successfully sell your business waiting to happen. Usually on favorable terms and on your conditions. This is the basic formula for a great company, a valuable company and a company that many people will consider buying.
What about cash flow? Buyers will always covet and seek cash flow. That’s the attention grabber, the qualifier, the first order of an acquisition, but in the end, after seeing how much money the business generates, they consider these three elements for a successful deal. Yes, there are other important items, strategic fit, location, financing capability etc., but if you have a successful company (strong cash flow) and these three components – People + Product + Market – know there will be no shortage of interested buyers and a Deal is 90% of the way done, for everyone involved.
The Three Principal Elements Needed For Successfully Selling A Company
I. People: The Infrastructure Managing and Operating Your Company.
The most important asset of a company, a quality company, are the people that make it happen. To a potential buyer they instill confidence for sustainability and comfort in the ideas of future expansion. Operations, Sales, IT and Front Line Staff – this is the essence of a company. The why and how the doors open each day. Cherish superb employees, they will reward your company 10 times over by their work and the value they create for an enterprise. You, Mr./Ms. owner, will find that out when the time comes to sell.
Racine, Wisconsin’s S. C. Johnson & Son utilized what people in Racine called “the golden handcuffs”. Once they had you, and they wanted to keep you, the “golden handcuffs” came on and you wouldn’t want to leave. Great compensation, wonderful benefits, work life, the entire atmosphere of being a part of a unique, international family business seduces managers and staff to stay. And they do! – Find a way to keep yours.
II. Product: The Product/Service Quality Compared to the Competition and Possible Future Market Disruptors.
“Best in class” is always discussed, but it needs to become part of your company’s ethos. A point of pride for everyone within the organization. Valuable companies have developed this culture.
Every day needs to become a new opportunity to pursue producing the best possible product or service.
A company that produces a great product or offers and provides a wonderful service will always be in demand. They are the gems buyers will look for and pay more to acquire. Why? These companies lead. They understand what separates them from the competition and they execute their model.
The larger the breadth and depth of your company’s separation from a possible competitor – the bigger a moat around your castle (the company) – the more value it brings to a suitor.
Some components that help construct a formidable moat, that differentiates a quality product or service and distinguishes a great company from the crowd might be:
- Copyrights (and their maintenance)
- Proprietary Designs, Know-how, Databases
- Brand and/or Trade Names
- Customized or Proprietary Software Programs. Best in class industry technology
- Hard to acquire licenses, zoning, regulatory approvals
- Customer bases in difficult-to-penetrate markets and spaces (governments – Federal, State, Local), acquiring new distribution channels
- Acquiring new distribution channels
- Experienced, dedicated employees and an accomplished management team
- Key employee incentive programs and contracts
- A great product or service your competition wishes they had
Having as many of these components as possible – only facilitates an acquisition success.
III. Market: How You Are Positioned?
Where and how well is your company positioned in the market and how does it compete for business? Will there be a there – tomorrow? Is the company sustainable and the cash flow scalable after it is acquired?
When acquiring a business, buyers will apply a go-forward strategic plan that, if implemented and successfully executed, will lead to a business’s higher future value. Buyers will look at and evaluate the following areas of the opportunity and if there, if executable – you got a deal!
- Is the business in a growth industry?
- Are there new markets that management could pursue?
- Is there pricing elasticity?
- Are there new products or services that existing customers may need?
- Will new distribution channels spur growth opportunities?
- What is the possibility of developing new products and reaching new customer bases?
- Can growth come from expanding reach to new territories or countries?
The more positively a buyer translates these questions into an acquisition, the more considerable the price, and the easier to sell.
Equals a Deal!
The above three elements, when together, sell a business 90% of the time. The experience of selling now becomes not whether the business sells, but at how much and under what terms and conditions you – the owner – would like!
When nearing the horizon of selling your company keep these three elements in mind, and if successful through time – in developing each – the more valuable, the more marketable and the better the chance of obtaining your dreams in successfully selling your business.