Knowing, in advance, what buyers are seeking will help you get the most money upon your exit as you begin now to prepare for your future business sale. In our experience, we noted these buyer concerns:
• Do you have a strong understanding and are you able to clearly explain the ups and downs of any related commodity pricing and how the fluctuations specifically impact the customers’ job pricing and your business profitability?
• Related to the fluctuation in commodities, do your customer job quotes contain a clause with a short window of acceptance and delivery in order to minimize the owner’s impact of rising commodity costs to the company’s bottom line?
• Low concentration of revenue with any one customer. Aim to have no customer whose revenues make up more than 10% of the company’s annual revenue.
• How long have key customers been with the company? Do the key customers deal directly with you or are they primarily communicating with your team? When you exit the business, do you believe the customers will stay with the new buyer and your team that you leave behind?
• How many weeks/months of customer backlog exists? Is this backlog priced at the same or greater profitability as in the past?
• Is there a key manager in place who knows the operation well and can run the operation in your absence? The buyer will not likely have your level of expertise and may need to rely on someone internally.
• How strong is your employee base? What is their experience level? Do you have resumes for them, or at least for the key employees? The ability to access the key employee resumes provides a buyer with a greater glimpse of how your business thrives.
• What is your employee turnover like? Find out what your specific industry average is, retain the source documentation, and work towards maintaining a lower than average industry employee turnover. Will the employees likely stay with the company after your exit? The buyer seeks a business with a great, experienced team in place.
• Are there any licenses and/or certifications required to operate the business? How easy/difficult are these licenses and/or certifications to obtain? Do any of the employees possess these required licenses and/or certifications? If not, consider having the employees begin this process now.
• Have there been OSHA audits/violations? Do you have the records for resolution? What is your company’s history of accidents?
• Regarding your financial books and records, are they accurate, organized, current, and easy to follow? If not, have someone begin working on this right now. The buyer and his/her lender will view at least the most recent three years of information.
SHOP & EQUIPMENT
• Is the shop well organized and process oriented?
• Is equipment well maintained with records/documentation to indicate such? Most buyers recognize that older equipment can still drive large revenues and profits as long as the equipment is properly maintained and repaired over time.
• In the year of your sale, your revenues, gross margins, and cash flow should be level or increasing as you look back at the last two years.
• Keep track of economic trends and sell far ahead of any anticipated downturns so the buyer can foresee a solid start.
• To receive substantially all cash at closing, stay aware of the lending environment–this is where buyers access the funds to buy your business. Depending on your own horizon, consider selling ahead of tightened lending policies so that you don’t have to be the buyer’s bank and assume unnecessary risk in your exit.
To learn more about the exit process, contact Diana by phone 704.488.4292 or by email, Miles@BridgeMergers.com