What a buyer looks for when buying a small business
When buying a small business, a buyer typically looks for several key factors to ensure the purchase is a good investment. Here are ten things that a buyer might look for in the decision process:
- Financial performance: The buyer will want to see the business’s financial statements to get an idea of its profitability. A smart buyer will analyze the Balance Sheet for cash flow. They may also want to see the tax returns for the past few years. Talk to us at Gartly Advisory!
- Growth potential: A buyer will be interested in the business’s growth potential. They will want to know if there are opportunities for the business to expand its customer base, increase sales, and improve profitability.
- Reputation: A buyer will be interested in the reputation of the business. They will want to know if the business has a good reputation in the community and among its customers. A funky culture and reputation amongst staff and customers mean a lot when it comes to valuing the goodwill of a business.
- Employees: The buyer will want to know about the business’s employees, including their qualifications, experience, and wages paid. They will also want to know if key employees may leave the business when sold.
- Competition: A buyer will want to know about the competition in your industry. This leads to how the business compares to its competitors. In addition, they will want to know if there are any barriers to entry for new competitors.
- Your customer base. Is it stable, growing, and loyal?
- Cashflow from revenue: will there be a flow of cash from customers
- Legal issues: A buyer will want to know about any legal issues the business faces or may face in the future. This includes any pending litigation, regulatory issues, or potential liability issues that could impact moving forward
- Is it a bolt-on? If you are a competitor, will you be able to cut expenses and add them to their existing business?
- Assets: The buyer will want to know about the business’s assets. These include inventory, equipment, and real estate. They will want to see the value of these assets and if they are in good condition.
Have a plan before embarking on selling your business
Overall, a buyer when buying a business will be looking for a profitable business with growth potential, a good reputation, and a well-managed business. They will also want to make sure there are no significant legal or financial issues that could affect the value of the business.
It’s why we recommend a plan to boost the value of your business before the sale. The ability to sell the business at an amount that exceeds your expectations comes down to planning. It’s offering what a purchaser wishes to see. Your exit journey starts now.
Many unfortunately leave it too late. At the very minimum, you should at least try and address some of the above before embarking on putting the business on the market.
Finally, the purchaser when buying a small business will look at the business to ensure it is not reliant on its owner for its future.
