B.A. Boss offers a small guide so that business or company owners can better prepare in case they want to sell their companies. In Spain it is estimated that in the next 5 years there will be some 400,000 companies for the succession, or to be sold or closed. Unfortunately the biggest part ends with a closure: almost a million (!) companies have decommissioned in the last 10 years. This is the third of 5 articles in which we give a little more detail to the process of a sale.
3- The profile of the business buyer This is the profile of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable situation at work. Almost 50% will have less than 100,000 euros to invest in buying a business. In many cases the funds, or part of them, will come from personal savings followed by financial support from family members. The buyer will never have owned a business before, and will most likely buy a business they never thought of going into until they entered it. The main reason for going into business is to get out of your current situation, be it unemployment or disagreement at work (or discouragement). The potential buyer wants to work for himself, control his own destiny, without having to work for anyone. Money is important, but it's not first on the list; in fact, it's probably in fourth or fifth place. In order to pursue the dream of owning their business, the buyer must be able to make the necessary “leap of faith” to take the risk of buying and running their own business. Buyers who want to enter a business strictly for the money are generally not realistic buyers for small businesses. Keep in mind the traits of a willing buyer: • The desire to buy a business • The need and urgency of buying a business • Financial resources • The ability to make their own decisions • Reasonable expectations of what the business can do for him. What do buyers want to know? This may be a bit premature as you may not have decided to sell yet, but it can help your decision-making process to understand not only who the buyer is, but also what they will want to know when buying your business. Here are some questions you may be asked that you should be prepared to answer: • How much does it cost to buy the business? • What is the annual sales growth? • How much is the inventory? • What is the debt? • Will the seller advise on the business and remain available for a while? • What makes the business different, special or unique? • What defines the product or service? • What can be done to make the company grow? • What can the buyer do to add value to the business? • What are the benefits in both good and bad times? Buyers want liquidity
The first thing to keep in mind is that most buyers want to buy liquidity. Eye! Liquidity is not the same as profit. Most buyers check the profit and loss statement or tax return, as well as the owner's or family's compensation. They will consider any excess remuneration to employees and family. Buyers will also look at large one-time costs, such as a new computer system or renovations. They will consider non-monetary factors such as depreciation and amortization. Owner prerequisites will also be reviewed. These are the factors that a professional broker considers when advising a selling client on a sale price. What about the Internet? If its use is appropriate for your business, then developing a website is important not only for your company, but also for a potential buyer. Many buyers are aware of what the Internet is doing for many businesses. If your company has a website, this can be an added value. Next week we will discuss what you should do before putting your business up for sale. If you want a copy of this article, click here.