Transworld Blog

From business brokerage to mergers and acquisitions; we are the business sale specialists.

All Posts

What Is Your Business Attractiveness Score?

What Makes A Business Attractive To A Buyer?

Buyers purchase businesses for a return on their investment.  Seller's base the business value on past performance, while buyers place the value on the future potential profits and risk level to achieve them.  When the seller puts themselves in the buyer's shoes, it will be easier for them to understand what buyers are looking for and why, and be better prepared for a successful transaction.  Read on to find out what buyers are looking for and what steps you can take as a business owner now, to prepare yourself and your business for a sale in the future.  

Different Kinds of Buyers

Attractiveness depends on the type of buyer interested in the business.  There are three main types of buyers who have different goals and criteria.  Each business is judged on how it meets a buyer's needs.  Knowing ahead of time what buyers are looking for and their motivation for buying can help business owners prepare.

  • Strategic Buyers are buyers that want to diversify, expand or eliminate a competitor.  Strategic buyers therefore may be friendly competitors, clients or vendors of your business.  They could be a business in an adjacent sector that wants to diversify or bring a product/service in-house, or a similar business expanding their footprint, or a direct competitor from another market.  Strategic buyers may be willing to pay based on a higher multiple of cash flow depending on the value of the acquisition to them. Strategic buyers typically will purchase businesses with revenue over $1,000,000 and earnings over $300,000. 
  • Investors are private equity firms or private individuals seeking a return on their investment within three to five years by growing and re-selling the business.  Investors will look for businesses not reliant on the owner that have clear opportunities for growth by adding cash or resources. They may pay a higher multiple of cash flow or EBITDA (earnings before interest, taxes, depreciation and amortization) for the business depending on the potential for return on their investment (ROI).  Investors, however, require a LOT of detailed reporting and time from the owner before a decision is made.  It can take up to a year of an owners time and effort just to learn that the investor decided to withdraw.  The upside is that investors that do move forward will typically pay more for what they are looking for, anywhere from one to millions for the right opportunity.
  • Owner/Operators are individuals that want to buy themselves a job.  Some buyers may be purchasing a business more as a hobby while others want to earn a living for their family. Typically owner/operators will purchase businesses from between one hundred thousand to a million dollars.  They are also looking for opportunities where the cash flow of the business will pay them a salary and also pay down the debt used to acquire the business.  Owner/Operators will typically be purchasing the business through a combination of savings from their 401k (401KRob) or SBA or conventional bank loan and some amount of seller financing.  Banks like to see the seller have skin in the game and be motivated to help the buyer succeed.

What Buyers Look For:

Buyers are looking for a business they can grow and continue to generate profits from, at a risk level they are comfortable with.  So what things help them feel more comfortable with that risk?  

  • Steady Increase In Profits for Three Straight Years
  • Steady Increase in Revenue for Three Straight Years
  • Established Customer Base
  • Residual Income Stream
  • Established and Good Reputation
  • Documented Process and Procedures
  • Positive Cash Flow
  • Minimal Reliance On Owner 
  • Growth Market Segment
  • Employee longevity and skills

Businesses that are not reliant on the owner, have positive cash flow and sales trends, that have trained staff in place that will stay on after the merger or acquisition, that have documented processes and procedures in place, a good reputation, steady client base and residual income are businesses that tend to sell.  How does your business "score" in these areas?  More importantly, are YOU ready to sell your business both personally and financially?

The first step in the process is to talk to an advisor.  We may suggest a Benchmark Broker Opinion of Value and Value Gap Analysis that gives you a road map of steps to take prepare your business for a sale.  Contact us today for a complimentary consultation.  It is never too early to start planning your transition.

Lauren Altschuler
Lauren Altschuler
I assist buyers and sellers of privately held businesses in the buying and selling process. We help value your business for the best price, advertise it confidentially to qualified buyers, handle buyer interviews, discussions, negotiations and facilitate the due diligence investigation and the sale of the business.

Related Posts

Is Buying A Business A Good Idea?

Yes!  Buying a business is a good idea.  Why?

Ten Steps To Selling Your Busines

Our Sellers except us to achieve the highest and best offer for their business while taking the least amount of their time away from it as possible. That is because the absolute best use of their time is to continue to run and grow the company.  If revenue or profits begin to decline, buyers will walk away or decrease their offer. Transworld's philosophy can be summed up in a ten step, how-to strategy that culminates with the sale of a company. This proven method has been used to sell hundreds of businesses.  Here are the steps. Step1 Comprehensive Business Analysis and Feedback As your business broker, the first thing in our how-to strategy is to analyze your operation, finances, market potential and industry trends. We take that information and advise you on steps to prepare your business for sale, and  generate a business profile that represents your company in the most attractive way possible. Step2 Sale Structure We identify the best possible price range to sell your company. This is based on solid facts, the condition of the market, projected growth, sales potential and the sale of similar businesses within your industry. Transworld’s experts apply sophisticated, time-proven valuation techniques to ensure that your price is appropriate for the current market condition. The price must not be too high or too low. Yet, it must represent an attractive investment potential for the buyer. Step3 Confidentially Network The Business For Sale During the selling process, we utilize the latest technology to present your company to other business brokers and strategic buyers all over the world. This greatly multiplies the effort in your favor. With Transworld Business Advisors, you have literally thousands of industry professionals confidentially representing your company to buyers.   Step4 Confidentially Advertise To Buyers Our aggressive marketing program ensures your confidentiality and provides maximum exposure for your company. Your listing is placed in various industry databases, Internet sites, and publications which are constantly updated. We spend more money in advertising and marketing for buyers than anyone else in our industry. Step5 Control The Information Flow We organize all necessary documentation and release information only as needed. We use limited information when advertising to maintain confidentiality. Buyers are pre-qualified and required to execute a confidentiality agreement before receiving any sensitive business information. Step6 Create Competition For Your Company We attract thousands of buyers, creating competition for your business. Buyers are qualified for financial ability to meet the offer, and we engage you with only the most qualified buyers. Once you meet the best of the buyers, we urge them to prepare and present all offers. We can continue to engage potential buyers on your behalf as negotiation on an offer is in process and have another interested party ready to go should a buyer change their mind. Step7 We Negotiate For You To Achieve The Best Price Appropriate negotiation is crucial to achieving your best price and terms. We have the expertise to establish sound and resourceful negotiating techniques on your behalf. Transworld has trained all of its agents in the art of negotiating through curriculum that we have created specifically for our industry. Never negotiate without planning, expertise, or from a position of weakness. Step8 We Provide Exceptional Support To You Through The Due Diligence Process We take pride in our exceptional service. Only half of the job is finding the right buyer who will pay your price and meet your terms. The other half is getting that buyer to the closing table. We quarterback the deal, work with the accountants, lawyers, banks, landlords, and other third parties that could jeopardize the success of the transaction. We realize that you depend on us to guide you through the sale of your business. We make the transition simple and easy for you. We know when an opportunity for you may arise and are always there to take advantage of it. We also know when someone is trying to kill your deal or is being unreasonable and how to handle those situations. Step9 We Are There From Beginning To The Closing We help manage all administrative procedures, licenses, inventory counts and lease assignments that may be required. Transworld works closely with your advisors to ensure a smooth transition. Using the latest technology, we strive to be ready to work on your behalf to get the deal done! Step10 We Are There For The Transitional Phase And Beyond! Because we are in the business community, you may want to consult us from time to time after the sale. We will provide you with the assistance after closing. Transworld will always remain in your corner! Schedule Consultation Now

5 Tips For Keeping Your Business Sale Confidential

When selling your company, it is crucial for the health of the business and its future that the sale remain confidential. If your customers, vendors or employees learn it is for sale, it could have a negative impact on value.  Learning of a business sale may encourage customers to replace your product or service, employees to look for more secure employment, and vendors to demand payment of invoices.   If the value of your business is impacted, you will lose negotiating power with buyers and will not get the highest and best offer for it.  One way to protect the confidentiality during the sales process is to work with a business advisor, who will work on your behalf, use best practices, and allow you to continue to run your business.  Here are some tips we share with sellers on  keeping a sale confidential.

Your Goals Are Just the Beginning

Talk to one of our Advisors today about next steps.

Free Consultation

E-mail address

minnesota@tworld.com

Contact us

+(888) 290-5232

Confidential Consultation

Talk to an Advisor