I believe every business owner starts their business with the subconscious idea that someday they will sell a business, maybe retire or just move on. Planning for that can maximize the value that you receive. The business owner can have influence on the future sale price, however the deciding factor is made by the buyer. Knowing the type of buyer that is most likely interested in your business and what they are looking for can help make this idea become a future reality.
I came across an article by Scott Bushkie, principal of Cornerstone Business Services. Scott has been buying and selling business since 2001. Along with the experience he is a Certified Business Intermediary, a Mergers & Acquisitions Master Intermediary and a Fellow of International Business Brokers Association. Based on a quarterly survey of business brokers and advisors over the last four years they noted “some clear buyer personas emerging”:
- For companies valued at less than $500,000, most buyers are looking to “buy a job”. These buyers are searching for a modest business that will provide a reasonable annual income and allow them to be their own boss. About 75% of these buyers are located within 20 miles of the business for sale.
- In the $500,000 to $1 million category, you’re still working with mostly individual buyers, roughly 45% first time buyers and 25% serial entrepreneurs. These individuals are looking to get out of corporate America and control their own destiny.
- The $1 million to $2 million sector, which is considered “Main Street” deals, will attract some attention from existing companies looking to grow through acquisition. However, the majority of the buyers are still individuals (38% first time, 32% serial Entrepreneurs as of his last survey) and about half will still be sourced from a close geographic area (50% within 20 miles).
- The $2 million to $5 million category puts us into the lower middle market. Here strategic buyers make up the majority, nearly split between existing businesses and private equity firms. Individual buyers are still viable players here, although these buyers would almost certainly be high net worth individuals with years of executive leadership experience. Individual buyers targeting businesses of this size will have hired a buy side advisor to assist with their search. Due to current market demand for lower middle market opportunities, many sellers will have several buyers to consider.
- In the $5 million to $50 million sector, businesses have mainly sized out of an individual buyer’s market. More than 80% of these buyers will be private equity, family offices, existing companies, or other strategic and financial players. The majority of these businesses will sell to buyers outside a 100 mile radius, as many strategic buyers will look regionally, if not nationally for their next acquisition.
Scott states, “there are many exceptions to every rule, but by knowing your likely buyer it will help you and your advisor maximize efficiency and opportunity in your search.”
Maximizing the price and creating a positive selling experience takes time. Knowing who your future buyer might be and focusing on why they would buy your business gives you the upper hand. As you are making current decisions think about the impact on the salability of your business. Keep in mind – will your decision increase the net profit? Strengthen your customer relationships? Allow someone else to take over and obtain the same financial results that you are?
For most business owners the business is their retirement plan. Be a good financial advisor to protect your greatest asset.
At FOCUS CPA Inc. we offer an annual strategic meeting to help business owners explore options to make the business more likely to sell and to increase the value. If you would like a sounding board to clarify your current financial information and to take stock as to where you are and where you want to be – contact Mary at 920-351-4842 or Mary@focus-cpa.com.
If you are a ready to sell within the next 5 years – feel free to contact Cornerstone Business Services, Inc. at 920-436-9890 or SBushkie@cornerstone-business.com.
By Mary Guldan-Lindstrom CPA with excerpts from Scott Bushkie CBI, M&AMI