I’ve been hearing a lot about buying businesses as a way to grow, but I have also had some people ask me to sell my business. I’m not sure what the right option is for me, because I don’t know enough about buying companies and I’m not sure if I’m ready to sell my own. Any advice?”
Making the decision to buy or sell a business can be a difficult choice. However, it is important to remember that both of these options have benefits. Buying a business can help companies grow and add value to the owner’s assets. Selling a business can help owners retire or move on to new ventures.
Buying a business can be a great way to grow revenue and service offerings.
When a business owner is looking to acquire an additional business, it is important to think about what they need in addition to what they already have within their own business. Sometimes business owners buy businesses purely for a customer list, sometimes for operational skills, or the sales teams, or the brand recognition.
The Buyers’ focus should be on the sustainability of the business in terms of its management, key customers, and prospects for growth. Keep in mind though, not all deals are good deals. Both sides, buyer, and seller, need to do their homework. For the seller, more potential buyers are usually a good thing. For the buyer, finding the right fit at the right price is crucial.
Maybe you’re looking to become a small business owner or maybe you’re looking to expand your business further. Whichever situation you’re in, small business acquisition can be a good way to achieve growth, but make sure the final deal works for you. Did you know that less than 1 in 5 potential sales deals cross the finish line, and many of the deals that do close fail to produce expected results? So how should you go about this?
Know what your goals are as a buyer or seller before you go into the deal.
This may be a long process, so both buyers and sellers should prepare for the possibility that their negotiations will last longer than they originally anticipated. It’s crucial to have experienced advisors on your side that are well versed in these types of deals and can provide you with a realistic business valuation. Be honest about what your business is worth, instead of trying to negotiate your retirement needs. Be prepare that your business may not be worth as much if you think it is. Good valuations are run using tax returns so when selling the company, make sure all profit has been pulled out at year end to avoid paying taxes-this could come back and bite you.
Do your research on buying and selling businesses.
It’s important to consider risk versus reward. As a buyer, it’s best to think about everything that could go wrong. Look for business owners who have reasonable expectations about selling their businesses. Analyze what’s being offered in the sale, and make sure you’re aware of how the acquisition will work for the seller. Don’t be afraid to say no if the deal seems too risky or makes you uncomfortable. Learn by examining other deals, which might in turn help you understand what you’re looking for.
If you’re a seller, know what’s reasonable to ask, what a good buyer looks like, and when the negotiation is good enough.
We advise sellers to focus the last 3-5 years of ownership on perfecting the business for sale. That means maximizing productivity and profitability, reducing debts and outstanding accounts receivable, cleaning up the books, and getting a series of valuations done that show progressive results. Sellers should be clear about the profile of “best buyers” likely to pay maximum value. Perfect assets that fit the needs of buyers likely to pay a premium. Talk to other business owners in the industry to find out what challenges they’re dealing with. Figure out how to minimize or eliminate those challenges to add value to the sale.
So why should I consider Buy/Sell Advisory in 2021?
As we’re all painfully aware, 2020 was a year like no other. The COVID-19 pandemic has been disastrous economically for small businesses and many industries are struggling in the aftermath. Although, with the help of working from home and social distancing, some businesses have been able to successfully pivot their operations and are coming out of this okay – particularly engineering, construction, e-commerce, and technology.
In our view, there is much to look forward to in 2021.
The appetite for acquisition is still strong, as well as the need for selling a business, in the wake of COVID-19’s effects. Loss of capital and lack of access to more capital in order to reinvest in the business may not be an option for some. You may not want to deal with the stress of the business and may be looking to sell now. If that is the case, now is the time to reach out to a trusted business advisor who can help you make the right decisions for your business.
Keep in mind that baby boomers are expecting to retire or are already doing so.
Many are looking for potential buyers of their business. When these go to market, buyer’s will have options when it comes to investing their assets. If you are a baby boomer, now may be the time to look into Buy Sell Advisory to make that transition of exiting the business a smooth one.
And for those industries that did gleam success in 2020, now may be the best time to consider selling the business. The best time to sell anything is when it’s worth the most. If you’ve seen an uptick in profits and steady increase of sales in the last 3-5 years, that is a good sign for any potential buyer.
Furthermore, with COVID-19, we’ve seen a tremendous uprising in technology use, with many businesses operating completely virtually and making use of various tools and programs. The industry has changed; we’ve jumped ahead 5 years in the span of 1 year. Learning how to optimize your business and align yourself with these new standards takes skill. And sometimes, that’s just not worth the time it takes to pursue. A good buyer may see the existing potential of your business as it is and may be more willing to run with these new ideas.
Lastly, it’s time to consider your Exit Plan.
You may be thinking a child, family member, or employee will take over the business when you’re gone. Do you know that they can do it? Do you know that they want to do it? Most importantly, can they afford to? Setting this plan in stone will no doubt ease your mind, because as we’ve seen, a crisis can hit at any moment, and your business can drastically change. As we’ve seen in our 25 years in the consulting business, generational transfers in family businesses are not always successful. On the other hand, an employee may not be able to afford to buy the business. Set this plan in motion so you are prepared to tackle it when the time comes.
Whatever you choose, 2021 can be the optimal year to consider Buy Sell Advisory.
Making these critical decisions alone can be a world of stress, so you’ll want to talk to someone experienced in executing these deals.
Looking for a good book? 11 Things You Absolutely Need to Know About Selling Your Business, by John F. Dini.