Wouldn’t it be great if you could read the mind of the person who wants to buy your business? Being able to foresee your buyer’s thoughts and understand what they’re looking for in a business would certainly accelerate the pace of negotiations.
When it comes to pre-empting buyer intentions, nobody is a mind reader. But, when you’ve been supporting business owners to prepare and sell their businesses for 20 years, there’s not much we don’t know. We’ve been involved in enough business sales to understand the buyer mindset and the questions they will ask to assess the viability of a deal.
In this blog, we share the questions a buyer will consider when deciding whether to pursue the purchase of a business. Thinking about these when preparing to sell your business can make it more valuable and attractive to buyers.
6 things a buyer asks when buying a business
- What’s your percentage market share?
A buyer wants to understand current market share and assess potential for growth. Often there’s a mismatch between the percentage share an owner thinks they have and their actual market share. We recently sold a business whose owner believed it had 30% of the market, when in reality their share was closer to 10%. It’s important to understand how to calculate market share accurately – a business broker has the tools to help you do this.
In a buyers mind, niche market businesses are generally more attractive than those with a broader reach, particularly when the business operates in a mass market. If you have the monopoly in your market that’s great, but is there also potential for future growth?
Niching can become a problem when operations rely on employees with a unique skillset. Think traditional trades and roles that require extended study, training or qualification. Prospective buyers could not only be put off by their own lack of knowledge of that niche, but also by the difficulty of replacing skills employees in the future, the result of which may stunt growth. Whether those skills come from a traditional roof thatcher or a modern day IT programmer, they could be an issue when planning to sell.
- Where is the genuine value in the business?
From a buyer’s perspective, genuine value comes in the form of a strong, trusted brand, intellectual property (e.g. software you’ve developed and own), recurring revenue streams, healthy cashflow, and growing profitability. How many of these boxes can your business tick?
- Where can I add value and grow the business?
In an ideal world, your business will attract a buyer that wants to invest in a stable, profitable business which they can leave to run itself. Generally, buyers are looking to identify where they can generate growth. This means they don’t want to see flatlining results; they want to see a healthy revenue growth profile. Static results may represent stability and consistent performance, but they aren’t a sign of growth. Static results could indicate the business has already reached its full potential and turn buyers off.
Sometimes a buyer will look for imperfections in a business as a way of identifying where they can add value. In this case, the right strategy could be to be upfront and honest about its weaknesses to attract a buyer with specific expertise in those areas.
- What is the owner telling me (or not telling me)?
If you’re feeling exhausted, emotional, lacking in energy and enthusiasm when you meet with prospective buyers, this will set off alarm bells. What is the owner telling me about the state of their business?
Body language is also key. Buyers are always on the lookout for hidden warning signs. This is where working with a broker has real value. They will coach you in how to approach such conversations, how to present yourself, and how to answer questions without revealing too much detail. A broker will advise you on how much information to provide, e.g. would it be appropriate to share your declining health or if you feel your business has outgrown you.
- Where are the recurring revenue streams?
Subscription models and recurring revenue streams are the gold dust of business sales. Repeat customers, predictable income and consistent cash flow are highly attractive to a buyer and increase the price they are willing to pay.
When working with clients to plan their exit strategy and increase business value prior to selling, developing recurring revenue streams is a common theme. If this is an area you’d like to explore, book a discovery call to discuss what recurring revenue might look like for your business, or take a look at our recommended reading.
- Is there a secure management team in place?
Business buyers are rarely searching for a 9-5 leadership role. Many will have started, built and sold their own businesses in the past. They are strategic thinkers looking for a sound and stable business purchase. While they may choose to add value or grow certain areas of the business in the future, their priority is to maintain consistency of operations – and to do that you need to keep skills and knowledge within the business. People, especially those in senior management roles, really are your greatest and most valuable asset.
Step into the mind of a buyer to prepare your business for sale
Across the world, businesses continue to operate in a challenging and uncertain times. In the UK, prospective buyers are seeking out savvy entrepreneurs who have worked out how to weather the economic storm. Stepping into the mind of a buyer can help you to understand exactly what they are looking for: developing recurring, long-term revenue streams, increasing average transaction value, growing market share or maintaining a happy team. If you can achieve some or all of the above, you will be well on the way to preparing your business for a successful and profitable sale.
