If your business is salable, finding a prospective buyer, or perhaps even multiple buyers, should be relatively easy. In the market right now, there are more buyers than there are “qualified” businesses for sale. The challenge in representing owners in their sale is that they need to understand the buyer’s mindset. Buyers look at your business from a different perspective, particularly when it comes to pivotal aspects of the sale. Similar to your house, your child or your dog, your perspective of value is different than someone who is unemotionally attached.
Fair market value is what willing buyers consider a fair price. It is not the seller, the broker, the CPA or your friend who sets the sale price. This number might not be appealing to you as the seller, in which case it’s perfectly fine for you to politely walk away and go about your business. Just realize that while value may be different for each buyer, it is rarely aligned with the seller.
If you have several potential buyers, fair market value rises. If you only have one potential buyer, their offer is FMV. But sellers should take to heart and know that sale value is made up of more than price: financing terms, deal structure and tax consequences lend value to the deal as well.
Risk is the biggest differentiator between buyers and sellers. You’ve been running your business for years or decades; how hard could it be for someone to come in and keep it rolling, right? Business owners are risk takers; we are “put your nose down and work” people. “No” is not an answer, failure is not an option and tomorrow will always be a great day. Risk for a buyer is a very different animal.
Remember, the buyer is ponying up the money for the purchase, and literally putting their life and investment on the line. Sellers have confidence in their business that buyers can’t automatically assume for themselves. Your buyer will not step into your business and make money from Day 1. They need to pay off their debt, learn the ropes and establish their vision – then they might start making money. A transaction to you is an investment for them, and investments tend to have more risk than transactions.
The buyer is investing in your business and not buying it just for fun, so your people, processes, and positioning all come into play. This is where we can potentially maximize your sale price. How well-equipped is your business for growth? How efficient are its operations? In other words, how much more can the buyer make from it? Learn more about these and other factors in my previous article, Top 5 Qualifiers for Selling Your Business.
In the End
While buyers and sellers come into the transaction with different perspectives and their perceptions can conflict in many ways, when we find the right match, the pieces fall into place. At Exit Consulting Group, we mitigate differences between the parties and structure honest, mutually beneficial transactions. Part of that is educating you, the seller, to see your business through the buyer’s lens. Learn more about our process here.