Building With Acquisition in Mind: 4 Simple Things That Make Businesses Attractive to Potential Buyers

Businesses that are built for the sole purpose of acquisition generally have less problems when it comes time to sell than those that are built with intentions of holding long term, or passing the asset on to future generations. I’m sure I didn’t shock anybody by writing those words, but it’s important to know, in case you didn’t already.

The thing that makes these sorts of businesses attractive to buyers are the profitable and efficient nature by which they are run in the beginning stages. Businesses that are built to sell are all about having clean and efficient systems in place and maximizing revenue with low overhead. In contrast, a typical business is run with the sole goal of being profitable, and supporting not only the proprietor – or partners – but the family as well. This often leads to overlooking business fundamentals, such as bookkeeping, attaching systems to recurring tasks, and proper hiring and management of employees – while the business is growing… a problem that is very difficult to correct later.

To help you build for the acquisition, or turn your existing business around for a possible sale in the future, here are 8 things that make your business attractive to buyers.

Profit & Assets

Most businesses tout revenue numbers as the benchmark by which they compare how well they’re doing. What a buyer wants to see is profit, and lots of it. Just because you did 10-million in sales last year doesn’t make you an attractive business. In fact, it doesn’t even necessarily make you profitable. If you do 10-million in sales, but have 11-million in expenses, how attractive do you think your business is to buyers?

Now, on the other side of the coin, some businesses aren’t super profitable but have a huge portfolio of assets, such as: machinery, office equipment, patents, or proprietary systems. Depending on the buyer, this sort of thing can be just as (or more) profitable than profitability.

Management

A solid management team is the foundation of any business. This means that not only is your business running smoothly, but that the chances of the company falling apart without you at the head of the table are much smaller. Many businesses are started by one person, and that person becomes sort of the conduit holding the business together. A business that can run without its owner is a winning business.

A good management team will also typically have proven systems and contingencies in place for the new buyer. These systems help keep the day-to-day operations running smoothly after the transaction has closed.

History

New businesses are inherently more risky propositions than businesses that have years of data on their books. Having even 3-5 years worth of records will increase your profits on a sale much more than a newer business with a year of solid growth. While the growth looks great on paper, you simply don’t know the future, and the more you have to go on when doing due diligence, the more your business is worth to a buyer.

Transparency

A seller that is upfront with brokers and buyers is a seller worth dealing with. The due diligence phase is going to uncover all of the skeletons in your businesses closet anyway, it makes sense to be upfront and honest about all aspects of the business so that it doesn’t come back to bite you later. Buyers know that few businesses are perfect, so share your problems in detail, as well as what you’ve tried to correct them. This makes you appear to be a trustworthy seller as well as speeds up the due diligence process… two things that any buyer will appreciate.

“To me, there’s no point in trying to dance around any material fact about the business.  Show the numbers, state the price you want.  If you lost a big account last year, say so in a big font,” says Gabe Galvez (founder of Fox Powers).

These 5 things are just a few of several dozen (or hundred) things that potential buyers could be looking for when purchasing a business. While there are numerous things to look for, these 5 are going to be the most common deal killers once it comes time to start negotiating.

Keep your business running smoothly, ethically, and profitable and you’ll be cashing a bit check sooner, rather than later.