The Mythical Buyer That Owners Need to Let Go

April 29, 2019Exit Strategies, Insights, Selling a Business

Owning a salable business is an empowering feeling. It’s exciting to know your business holds real value that you can use to transition into your next chapter in life, whether that be retirement, a new venture, or a hobby that creates a balance between the two.


When you’re ready to sell your business, Exit Consulting Group is here to help you find a buyer. At that point, you may begin to imagine a Prince Charming who will knock on your door and offer a huge sum of money for your business. Get this person out of your mind ASAP, because unfortunately, they don’t exist. Why?


No One Will Overpay for a Business

Buyers will only pay fair market value for a business. That number might sound like a calculation, but it boils down to what a willing buyer is willing to pay for a given business. Even a strategic buyer who is a synergistic fit—such as a roofing company buying a solar panel manufacturer, for example—is not going to pay higher than fair market value.  Please get out of your mind that another business “should” buy your business at a certain value.  The market determines what your business is worth, and the only way to raise the sale value is to have multiple buyers bidding.  Supply and demand drive up prices so understand that when it comes to understanding the value of your business.


Growth Requires Investment

When selling your business, it’s easy to point to growth potential as a driver of value. Sellers say that they have thousands of past clients, great vendors, a strong employee base, and good equipment, which may be true.  The question any buyer will have is: why haven’t you tapped into this potential yourself? Don’t oversell what your business could be without first considering the investment needed to fuel such a vision. Pursuing growth takes time, money and energy. It affects the finances of the business, and any buyer willing to take on the risk involved is going to want to reap the benefits of their investment—which means…


A Great Price Might Mean Not-So-Great Terms

If you’re receiving an offer that defies fair market value, there’s a good chance the terms bring your takeaway from the sale back down to Earth. Some buyers will give more in sale price to receive more on the balance sheet as part of the purchase. They include in the purchase price your Net Working Capital or usually exclude the debt.  Or, they may offer to pay the sale price over time as proceeds of the business, giving themselves the option to walk away if the business fails. In the latter case, the owner could be left with their business ruined and no money to show for the sale.

Unsolicited Offers Rarely Turn into Deals

Oftentimes, it’s an unsolicited offer that makes it seem like the mythical buyer is really out there. When someone contacts you directly to inquire about buying your business, you feel like you’re winning at life. But wait a minute…did they even mention the price?


Unsolicited buyers are typically sophisticated and prolific. They know what they’re doing and contact business owners on an ongoing basis with the same inquiry that made you feel special. These buyers will tell you everything you want to hear, with no mention of price, terms, or the specifics of your business. Put simply, they don’t pan out. Worse yet, they can be disruptive and damaging to your business. If you receive an unsolicited offer, know your three options.


All Roads Lead to ROI

Whether you’re seeking offers or reviewing them, understand that all a buyer really wants in a business is to capture a return on their investment. The sale price and deal terms can be as creative as both parties can manage. In the end, all deals come down to the risk around future cash flow.  Buyers need to believe that cash flow will continue and the business will succeed after the purchase. Instead of wishing for a buyer, think like one and position your sale accordingly.