Owners Don't Sell Business' Growth Potential
In the last issue (#83) we discussed the obstacle: Sellers Don’t Understand Buyers’ Motivations. In this issue we will explore another obstacle: Owners Don’t Sell Business’ Growth Potential.
" When you can measure what you are speaking about, and express it in numbers, you know something about it. But when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind." Lord Kelvin
Owners Don't Sell Business' Growth Potential
Face-to-face meetings with prospective buyers are a critical step in the process of selling your business. In the last issue we focused on the importance of your preparation in responding to buyers’ concerns about the potential risks they face in acquiring your business. Risk aversion is a primary motivator for buyers.
During a first meeting, in addition to trying to identify risk factors, the buyer is also looking for the owner to sell him on the growth potential of the business.
Although the price you receive for your business is primarily determined by your past operating results, future growth potential helps seal the deal. It’s the sizzle on the steak.
While there is no such thing as a typical buyer, it is best to assume your buyer will be a mid-level executive from the corporate world who has entrepreneurial dreams. Assume the buyer thinks his significant management experience will enable him to improve any business he acquires. What he lacks is knowledge of your specific situation and what he can do to implement improvements. That first meeting is a great time to provide him with your thoughts on the opportunities for growth.
Be prepared to discuss growth opportunities
As discussed in previous newsletter issues, if possible, you should position your known and disclosed obstacles as opportunities. However, don’t limit yourself to those items. Spend some time thinking about growth opportunities. What might you do to improve your business if you were younger, had additional capital and were willing to spend the extra hours to implement new ideas? Would you consider additional product lines, geographic markets or new hires? Would you try new marketing methods, raising margins, cutting costs, implementing online sales, etc.? If you can provide the buyer with realistic ideas for growing the business, it can help offset other doubts the buyer may have about acquiring the business.
Be prepared to discuss business metrics
It’s not uncommon for small business owners to run their business somewhat intuitively, without a lot of analytical information. On the other hand, the typical buyer (as outlined above) has come from a more structured environment that constantly measures business metrics. In meetings with buyers, you are likely to be asked about your key business metrics. This is another area you need to be prepared for.tep in the process of selling your business. In the last issue we focused on the importance of your preparation in responding to buyers’ concerns about the potential risks they face in acquiring your business. Risk aversion is a primary motivator for buyers.
The nature of key business metrics will vary from company to company. Some common metrics are percentages of: leads to close, gross margin, payroll, overhead, seasonality, salespeople and customers. Metrics may also include average sale value, sales by product line, average monthly sales, average accounts receivable collection period, average inventory levels and turnover rates, working capital levels, bad debt ratio, etc. In conjunction with your intermediary and your accountant, most of these metrics are easily discernable. If you are knowledgeable about the key metrics when meeting with buyers, it provides a significant comfort level for them. In addition, analyzing your metrics might help you identify growth opportunities and document how to achieve certain goals.
Know your competitors and your competitive advantages
For a buyer, the nature of your competitors and your competitive advantages, or lack thereof, are risk areas that are sure to be asked about. If you are unable to answer coherently, it raises another red flag in the buyer’s mind.
When sellers are …..
