Understanding What Business Buyers Want to Ensure a Successful Sale

Selling your business is a big decision that requires careful planning and consideration. As a business owner, you’ve invested time, effort, and resources into building your enterprise. After getting a sense of what your business is currently worth, if you are like most owners, your next question has to do with whether your business can actually be sold. While each buyer seeks a specific type of business, perhaps based on location, business sector, or even business size, all buyers seek businesses with strong financials and the potential for future growth. Understanding what potential buyers are looking for is vital to ensure a successful sale. By gaining insight into what buyers value, you can customize your strategy to enhance the appeal of your business and increase the likelihood of a seamless and profitable sale.

Buyers Look for Financial Strength and Condition

One of the first things buyers assess is the financial health of your business. They are looking for increasing sales, increasing profits, and, especially, strong owner earnings. Owner earnings become the basis of the business valuation, with higher earnings leading to higher business prices. These financial indicators, especially robust owner earnings, are the foundation of your business's valuation. Buyers seek assurance that the business can generate consistent and strong annual earnings for its owner.

Buyers will also delve into financial statements to verify various conditions. They will want to review financial statements that go at least three years back to verify the following conditions:

• Positive cash flow, resulting from more money flowing into the business than transferring out of the business.
• Working capital, which is the positive difference between the current assets of the business and its current liabilities.
• All taxes paid to date.
• Either no debt or current debt payments.
• Current accounts receivable.
• Assets that exceed liabilities.

Legal Issues

When searching for businesses to acquire, buyers tend to avoid enterprises with legal issues. When reviewing prospective businesses, they look for signals that legal issues lie ahead in the form of lawsuits, contract disputes, or pending legal actions, whether from product warranties, employee lawsuits, regulation or zoning issues, or any other unaddressed legal issues.

Buyers Look For Distinct Products and Services

Buyers are drawn to businesses with products and services that are in strong demand and that generate steadily increasing revenues and profits. They value products that are produced using proprietary or difficult-to-replicate processes that serve as a barrier to competition but are well documented for easy adoption by a new owner.

Strategic Location

Buyers seek businesses that are well positioned geographically and within industries or business sectors that are strong and growing. They value an attractive geographic location for livability, for accessibility, and, if your business serves a local clientele or relies on a local workforce, for access to a growing population of residents who match the customer profile and employee descriptions of your business. They also seek businesses with attractive physical facilities located in areas with no threat of zoning, redevelopment, or other changes that could threaten business viability.

Buyers Will Inspect Facilities and Equipment

Modern facilities and well-maintained equipment are assets that attract buyers. Whether owned outright or under long-term, transferable leases, these assets should be in good condition and supported by transferable service contracts.

Efficient Processes

Buyers seek businesses with systems in place to achieve financial goals and keep the business running smoothly. These include well-structured and cost-efficient operations that are well documented and implemented, strong marketing, customer service that draws good reviews and word-of-mouth, and, depending on the nature of the business, other capabilities such as distribution and delivery and research and development.

Business Buyers Want a Skilled and Stable Workforce

Buyers want assurance that the business success does not rely solely on the current owner’s management, skills, and knowledge. They prefer businesses with an organizational structure that supports business success even in the owner’s absence, with key managers who can provide continuity after the sale. They want to know that key managers have signed employee contracts and enjoy benefits that heighten the likelihood they will remain with the business after the sale to ease a smooth transition to a new owner. And they want assurance that staff is well trained, with employment policies outlined in an employee manual or handbook.

Loyal Clientele

Buyers want assurance that the clients or customers of the business rely on and value the offerings of the business and the expertise of its managers and staff as much or even more than they rely on the owner’s personal expertise and interaction. Put differently, they want to know business success does not hinge on the current owner’s presence and abilities. They want to see that the business has a loyal clientele (unless its success relies on transactional rather than long-term or repeat customers), a broad client roster rather than reliance on a few customers, signed long-term contracts with major clients, and a well-maintained client database.

Buyers Will Delve into Brand and Reputation

Almost any buyer with interest in a business quickly conducts an online search. Buyers want verification that the business they are considering is well regarded, well known, respected in its market area and business sector, and backed by positive customer relations, strong marketing, and a positive online presence. They want assurance that the business has a strong and respected brand and, as the owner of the business, you want the same thing, because a strong brand and positive reputation contribute heavily to the intangible value of your business – to its goodwill – which is a strong contributor to the value of the business and the price a buyer will pay.

Transferability

Buyers seek assurance that the business can transfer with no obstacles, including:

• Transferability of clients: Buyers need to know that customers, especially major customers, are committed to and served by the business and not just its owner, and that contracts and a well-maintained client database will transfer with the business purchase.
• Transferability of business capabilities and processes: Buyers value processes and systems that are well defined, well documented, and easy to adopt.
• Transferability of business contracts: Buyers expect well documented and transferable relationships with customers, suppliers, distributors and other key associates, and transferable long-term leases on facilities and equipment.
• Transferability of workforce: Buyers want to see that key employees have contracts, employee benefit plans, and other incentives that keep them loyal to the business.

Understanding what business buyers want when evaluating a potential purchase is pivotal to a successful sale. By focusing on financial strength, legal clarity, competitive products and services, strategic location, efficient processes, a skilled workforce, a loyal clientele, a strong brand, and transferability, you can make your business more appealing to prospective buyers. Transparency and meticulous documentation will build trust and enhance the value of your business in the eyes of potential buyers. With this understanding, you can embark on the selling journey with confidence, knowing that you are well-prepared to meet the expectations of discerning buyers and secure a favorable deal for your business.

Check out the BizQuest Broker Directory to locate a business broker that can offer guidance on what potential buyers are seeking.