6 tips to find the best buyer for your business

It takes more than offering a fair price to find the ideal buyer for your business.

You want to make a big profit by selling your business? But you don’t want just any buyer, you want the most competent buyer to manage your business?

It is not complicated to receive proposals from buyers, but finding a buyer who agrees to pay the right price while having the qualities to take your place and allow you to leave your company serenely, is another matter.

Matching the right buyer with the right company is a complex process and the transfer takes time. However, the more prepared you are, the more likely the outcome.

Before looking for a buyer, there are important questions that sellers should ask themselves. First, is your business transferable? Several elements of a business make it easier to sell: a solid history of profitability, competitive advantage, a diverse and loyal customer base, long-term contracts with clients, or ambitious growth opportunities. Other considerations include brand loyalty, intellectual property rights, licenses or patents.

For the seller and the buyer, the inflection point is the valuation of the company. Of course, you want to maximize the value of your company, but setting the price too high could lead to a rejection of the market, scaring off potential buyers. On the other hand, if you set the price too low, you will lose.

According to transmission experts, the value of a company is determined by a combination of factors such as sales, earnings, performance, market outlook, personnel, net book value and the replacement market value of equivalent operating assets. Value is also influenced by intangible assets such as a company’s brand image and innovation policy.

However, buyers often prefer a valuation approach based on future profits. And to justify future profits, it will be necessary to look at past profits.

Indeed, the trend of the performance indicators of the last 3 years will mainly serve as a reference for the calculation of future profits and if the trend is negative, there is no chance to justify a sudden increase in future profits.

In France, companies are generally sold for a multiple of earnings or margin. Elements that affect this multiple could be the type of business, the level of expertise in the sector.

To get a fair and reasonable price for your business, you need good negotiating power on your behalf. Consider hiring an intermediary whose job it will be to determine the appropriate value for your business and find the perfect buyer to sell it for the asking price.

Finding the right buyer is the key to a smooth transaction and will also contribute to the success and continued growth of the business. Even if you work with an intermediary, you still need to understand the process. Here are some guidelines to help you navigate the rough waters.

1. Who are your potential buyers?

Anyone could be a candidate. A buyer can come from your employees, customers, suppliers or competitors. People buy businesses for different reasons, and that will affect how you present your business to them.

Generally, buyers are divided into two groups: strategic and financial buyers.

Strategic buyers will appreciate how well your business fits into their own company’s long-term plans. It could be one of your competitors or a large company that wants to enter a new market or buy a new product. If you know what they want, strategic buyers will usually pay you more than other types of buyers.

Financial buyers are more interested in the profitability and stability of your business. They may be companies or individuals with money to invest. Some will want a solid, well-run business that requires little oversight, while others will specialize in turnaround situations and look to buy a business that they can restructure for a profit.

2. Where can you reach potential buyers?

If your company is well known, it is not impossible that buyers will come forward spontaneously. But more likely, you will need to cast a wider net. You can spread information to people around you or use communication media such as trade publications or newspaper ads. There are websites such as Cessionpme.com and Fusacq.com.

However, a business transfer professional has access to deal flow and can screen and approach potential buyers in a confidential manner. You probably don’t want to risk losing valuable customers, suppliers or employees because of negative connotations that could come from putting your business up for sale?

3. Why should you select potential buyers?

Documents such as confidentiality undertakings and information about their financial situation are standard for potential buyers. An intermediary can screen buyers to ensure that they are financially qualified to take over your business. This includes a review of their assets, available funds to invest, sources of financing and pending litigation.

But that’s not enough: you need a buyer who has business experience, management experience and, most importantly, the skills to take the business to the next level.

Find out the main reason for the person’s or company’s interest in buying your business. If the buyer is another company, make sure there will be synergy. If it is a private equity group, look at their past experience in acquisitions. Don’t rule out doing a Google search on individual buyers to make sure there are no scandals or court cases.

4. How to present your company to a potential buyer?

Selling a home is not the same as selling a business. But just as real estate sellers tidy up and redecorate a house to attract more buyers, you need to prepare the presentation of your business before approaching potential buyers.

Your accounting must be impeccable in form and the data for at least the last 3 years must be accurate. For example, remove unproductive assets or unsaleable items. In addition to the list of assets and financial information, include projections for future earnings.

Create a summary document that tells potential buyers about the key elements of your business; provides a list of your products or services, an industry overview and explains why you are selling the business and the proposed transition terms.

5. What to expect in the transaction?

There are a few basic decisions you need to make like:

• To grant or not to grant a vendor credit?
• Sell the entire business entity or just assets?
• To keep assets or not?
• Does the buyer have to keep the staff or replace some of them?
• Will you maintain a minority interest in the company even temporarily?
• Do you have a transition period of 1 year after the business is sold?

6. When are you ready to close the sale with a buyer?

It can take from nine months to 1.5 years to sell your business.
Once a buyer makes an offer to purchase, you can accept the offer, counter it or reject it entirely. The deal becomes more binding on you once you accept a letter of intent. Your acceptance often opens a period of exclusive negotiation that will allow you to agree on all the points of the transaction.

The sale is firm once all parties have agreed to the terms and conditions, and all conditions precedent, including financing and auditing of the company, have been lifted.