Why buyers buy – What makes a business attractive?

Why do buyers buy? They are looking for a return on their money! The higher the perceived return on their investment, the more attractive the business. And of course the more attractive the business the more potential buyers are prepared to pay.

Business attractiveness depends on the buyer type

Attractiveness will be relevant to the type of buyer and the reason they are buying. For example, an owner/operator is buying a business to essentially buy themselves a job. The average spending of these buyers would be $100,000 to $1,000,000 and any business for sale over this category may be unattractive.

A multinational or large company that buys a business for strategic reasons will rarely spend under $1,000,000.  A multinational would not look at a business unless it had enough profit and upside to justify the stringent due diligence, legal and accounting fees.

A strategic investor is generally looking to expand or eliminate a competitor. They might be looking to expand and see the strategic benefits of the following:

• Products or services to add to their base
• Intellectual property
• New distribution channels
• Locking in supply
• New ways of approaching customers
• Management expertise
• Brand expansion
• International expansion
• Competitor buyout
• Employee Skills

Certain factors provide the potential buyer with security:

• Ensuring there is a sound financial history.
• Records of a steady increase in profit for the last two to three years, with a similar increase in sales over the same period.
• Positioning the business as a good low risk return on the investment.
• Highlighting an established customer base, sound internal systems, market awareness and credibility, an operational framework and cash flow.
• Highlighting positive industry trends.
• Highlighting company awards, testimonials or even an ecologically responsible product or service.
• Ensuring the business does not appear to be reliant on the owner and that there is a succession of employees that could take over the existing owner’s job when he/she departs.

Buyers want to minimise their risk

Buyers will minimise their risk by carrying out a thorough due diligence and investigate the business. Sellers can maximise their position by being prepared for the scrutiny that prospective purchasers will put the business under. The more prepared the seller the higher the ultimate price that they may negotiate.

Therefore, you will need to know e.g. what the value of your business is. Weirdly, most business owners know what their house is worth, but not what their business is worth.

A business appraisal will provide you with an edge when selling your business. The more knowledge you have and the more presentable your company is, the more likely you will be to sell at a higher price.

Ascend Business Partners provide a business appraisal that identifies business risks and opportunities to protect and enhance the value of your business, the key issues that a potential buyer would consider in acquiring/merging the business, and provides insights into the value of the business.

If you want to find out more about what you can expect during the sales process, please contact us on 03 8794 7777 or ascend@ascendpartners.com.au. You can also book a free 1-hour “Time to REFIRE” workshop with Greg Johnson here!