Are you considering selling your business, and wondering what motivates potential buyers? Understanding why people buy existing businesses will help you to get the best price when you sell yours. Here are the top 3 reasons that acquisitions of small business take place:
- Profitability of the target business: Generally, an acquirer is more inclined to buy your business if they expect an immediate return on their investment with current profit. A profitable business is attractive to a larger number of buyers than an unprofitable business, with more interest generated as your profitability increases. Your profit margin also plays into whether an acquirer is interested in your business, with a higher margin presenting less of a risk to a buyer.
- Potential for growth of the target business: Businesses in high-growth industries, or those located in markets primed for expansion, attract more acquirers and higher bids. If you know that your business is perfectly suited to expand in the near future, decide if you want to deal with that expansion yourself, or if you want to put your exit strategy into practice. Even a business that does not have explosive short-term prospects, but is expected to perform well in the long-term, is desirable to other companies in the same industry. Any type of growth potential is good and is of interest to a buyer.
- Ability to help a larger company enter the market or extend its reach: Your business may be the perfect strategic acquisition for a larger business intent on growing their presence in your industry or breaking into the industry. An acquirer looks at what your business offers them. Perhaps you are a competitor of theirs in certain markets, or within a certain subsection of the population. If a business believes it would become more profitable with your company under its ownership, you may find it open to acquiring your business. Sometimes, the company interested in yours is not yet a player in your industry, but rather is looking to get their foot in the door. Since they are new to your industry, they may ask you to stay on awhile to help manage the company. If your goal is to sell now and walk away, this type of acquisition may not be in your best interests.
If you are interested in selling your business, it is best to plan as far ahead as possible, in order to best position your business to yield the highest price. Taking the time early on to evaluate the aforementioned motivators will help you to present your business in the most favorable light when you are ready to start accepting bids. And, as always, make sure that you surround yourself with a team of professionals that you can trust to advise you through the process – your attorneys, accountants, and business consultants and other advisors are great resources to have on your side.