Who are the Buyers?

Buyers buy businesses for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close. Here are just a few of the reasons that buyers buy businesses:

 

· Laid-off, fired, being transferred (or about to be any of these)

· Early retirement (forced or not)

· Job dissatisfaction

· Desire for more control over their lives

· Desire to do his or her own thing

A Buyer Profile

Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. Chances are he is a male (however, more and more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than R 500, 000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.

Their primary reason for going into business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing, be in charge of their own destiny, and they don't want to work for anyone. Money is important, but it's not at the top of the list; in fact, it probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one's own business, the buyer must be able to make that "leap of faith" necessary to take the risk of purchasing and operating a business.

Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses. Keep in mind the following traits of a willing buyer:

· The desire to buy a business

· The need and urgency to buy a business

· The financial resources

· The ability to make his or her own decisions

· Reasonable expectations of what business ownership can do for him or her

What Buyers Want

This may be a bit premature if you not have decided to sell, but it may help in your decision-making process to understand not only who the buyer is, but also what he or she will want to know in order to buy your business. Here are some questions that you might be asked - and, should be prepared to answer:

· How much money is required to buy the business?

· What is the annual increase in sales?

· How much is the inventory?

· What is the debt?

· Will the seller train and stay on for a while?

· What makes the business different/special/unique?

· What further defines the product or service? Bid work? Repeat business?

· What can be done to grow the business?

· What can the buyer do to add value?

· What is the profit picture in bad times as well as good?

Buyers Want Cash Flow

The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant or bookkeeper and begin to get your financial statements in order, with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, as well as owner or family compensation. They will consider any excess compensation to employees and family. Buyers will also look at large, one-time expenses such as a new computer system or remodeling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner prerequisites. These are items that a professional business broker considers when advising a selling client on a selling price.

*Insider Tip

What about the Internet? The Internet is a real "buzz" word - and if its use is appropriate for your business, then developing a web site is important not only to your on-going business, but also to a buyer. Many buyers are conscious of what the Internet is doing for many businesses. If you have a web site for your business, it could be a big plus.

What Can You Do?

Appearances Do Count

The time to replace that old worn-out piece of equipment is before you decide to sell. Don't assume that a new owner will want to do it or that the price will just be slightly lower because you haven't replaced it. The time to "spiff up" the business is now, even if you aren't selling. Fix the sign, replace the carpet, paint the place - make it look good. Even if you're not selling, it's just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!

Everything Has Value

There are other things that add value to your business. Don't discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed "off-balance sheet items," and although not used in most pricing models, they add to value. Look at your business very carefully so you don't overlook those items that make your business more attractive to the buyer.

Eliminate the Surprises

Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises - most of all potential buyers. Whether legal, accounting, environmental, or anything else - solve it now.

*Insider Tip

This may sound like something that should have been done when the business first started, so it may be "after-the-fact". You should create operations manual. You may already have one, or started one year ago, or simply, have thought of doing one. Now is the time! It may actually create added value to the business. Even if it doesn't, it will impress buyers that you have your business "act" together and should help you sell more quickly and effectively. Preparing a manual on how to operate your business can also be helpful even if you don't want to sell. It doesn't have to be elaborate, just cover the basics. A collection of ads that you have placed in a catalog or sample of products, publications, or menus (if the business is food related) is also impressive. Include anything to do with the business that might be helpful for a new owner. However, don't include anything that is proprietary, such as customer lists, suppliers or secret recipes, etc.

We look forward to working with you in finding a suitable buyer for your business. You, as the seller, are an integral part of the total marketing program. Below you will find a few friendly recommendations that will help in our marketing efforts when you decide you are ready to sell.

· Keep normal operating hours. There may be a tendency to "let down" when you put your business up for sale. However, it's important that prospective buyers see your business at its best.

· Repair signs, replace outside lights, etc. You don't want your business to look as if it has been neglected.

· Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything, increase it so your business will look busy.

· Remove items that are not included in the sale and unnecessary items, especially if inoperative.

· Repair non-operating equipment or remove it if you are not using it.

· Tidy-up outside premises.

· Spruce-up the inside of the business.etc.

It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself in the place of a prospective purchaser of the business. What would you do to make it more attractive or more saleable? Obviously, the financial records of your business are critical to the sale of your business, but how it looks is also important. First impressions really count! If a potential buyer doesn't like the appearance of your business, the rest of it may never get a chance. If you have any questions, please don't hesitate to call us. We look forward to hearing from you!

Do You Have Other Questions?