Who will buy your business ?
Factors which can affect whether you are able to find buyers for your business.
It’s pretty common for entrepreneurs to have an optimistic view of the value of their own business. However, one key question could stand in your way when it comes to selling. Would anyone really want to buy your business ?
The majority of businesses that are put on the market fail to sell. That’s a worrying thought. The process of putting your business on the market can be time and energy consuming, disruptive and costly. The even scarier thought is that many of the reasons for failure can be avoided with adequate preparation. Here’s a few of the most common reasons businesses can fail to find a buyer:
No-one is interested in buying. Ask yourself why someone would buy your business. Be honest – is there something valuable about your business which is worth paying good money for? Most commonly, businesses are bought for their customer base, product or specialist skills and knowledge, scale, or as an effective way of entering a new market or geographic territory. It’s got to be a cost effective reason – the alternative for a potential buyer might be to build themselves whatever it is that you are selling.
Mis-match between the price you want and the price anyone is willing to pay. Fairly obviously, if you want more than anyone is prepared to pay for your business, you won’t be able to sell it. Bearing in mind the downside of a failed sale process, it’s highly recommended that you obtain a completely honest expert view as to the likely price and decide whether or not you’d be prepared to sell at that price. If not, don’t pit your business on the market.
Reliance on key individuals. If your business is reliant on (or perceived to be reliant on) a few key people then that makes the business much less attractive to buyers. Particularly if those key people are going to do so well financially from the sale that they might be less motivated subsequently.
High dependency. A few customers accounting for a significant proportion of your revenues may be a cause for concern amongst potential buyers as the loss of one of these customers could have a major impact on the business. Similarly, reliance on a sole supplier exposes the business to greater risk, as do business critical relationships with any other third parties.
Poor customer service/poor product quality. It’s not an attractive proposition to buy a business with a poor reputation, unless the price takes this into account. It’s better to sort this out before taking a business to market.
Intellectual property (IP) issues. If your IP is integral to the value of the business, then it should be and have been properly protected legally through watertight licence agreements, employment contracts, subcontractor agreements, etc. Similarly, there must be proper evidence that all IP used both internally and within products/services supplied to customers has been legitimately used and supplied without breaching anyone else’s IP rights. This is a potential deal breaker if it hasn’t been done.
Tax, legal and accounting issues. Due diligence will, amongst other things, forensically examine everything to do with your company’s tax position, legal protections, finances, systems and processes. Irregularities, inaccuracies and other concerns found during this exercise, will at the very least provide the opportunity for the buyer to re-open price negotiations and quite possibly, could even be deal-breakers.
Low barrier to entry/ease to compete against. If it’s relatively easy to set up in competition with your company, then the risk from competitors is greater, which makes your business less attractive to purchasers. Similarly, it increases the prospects for a potential buyer to set up in competition instead of buying your company.