This is the fundamental question you need know before doing anything else. It will largely determine whether or not you proceed with a sale. Working with someone like us who has a finger on the pulse of the market and understands how to value a business will give you a realistic view of the market. We offer complimentary, no obligation valuations for owners taking this first and important step. See our Value a Business page and our Value Advisor Library for more information.
There are three types of buyers for a business; financial and strategic buyers and Private Equity Groups (PEGs.) Financial buyers tend to be individual or small investor groups that wish to own and operate a business and will probably value a company based on an acceptable rate of return on the capital they invest. Strategic buyers consist mainly of companies in related businesses that wish to buy a company to give them greater market reach and drive more revenue and earnings to their business. Generally, they are willing to pay more for a firm because the synergies derived from the acquisition may be greater than that of a stand-alone investment which yields a higher level of earnings. PEGs are investment firms backed primarily by institutional capital that makes direct investments to acquire all of a company or a majority and/or minority stake in a company. They may or may not put their own management in-place and generally wish to exit an investment over a 5 to 10-year period after acquiring by selling it for a higher price.
Your company may be a target for one or more of these three types of buyers. VR Business Sales New Haven has a data base of over 500 PEGs and 2,500 individual and strategic buyers that we tap into for any engagement and we can assist you in defining which type of buyer may be best for your firm.
Net proceeds of a sale is the money you will be left with after the transaction fees and taxes due are subtracted from the purchase price. Knowing this number is more important than knowing the valuation since it is the sum of money that will be available to either fund your retirement or pursue another opportunity. Additionally, most transactions are structured with a portion of the purchase price paid with deferred payments that come in the form of sellers’ notes or earn outs. Understanding the tax and financial effects of deal structures with these kinds of terms is also critical. As you may have concluded, involving your accountant and financial planner in the sale process will be an important step to making an informed decision.
Often businesses operate in industries that don’t command premium sale prices. This problem is external to the business and not much can be done to change it. Other times, businesses are not as well run as they should be or have an operating deficiency such as high customer concentrations or poor accounting systems that negatively affect a valuation. In such cases, there is much that can be done to fix the problems. Within our own office, all of our agents are capable of identifying what needs to be addressed to improve a company’s valuation and can assist you in implementing the changes. In areas where it is beyond ours’ or your expertise, we can recommend a number of consultants that are capable of executing improvement programs. All of this may require that you defer a sale, but any efforts to improve the business will always yield a higher sales price.
Selling a business involves a lot of moving parts and typically takes six months to a year which is why you should engage an intermediary like us to manage the process. You don’t want to be distracted from running your business- particularly since it is important to have the business perform well in the year that you sell it. Read more: The 9 Step Sales Process
Maintaining confidentiality is of paramount concern to us. Sellers don’t want their employees, competitors, customers and suppliers know that the business is for sale for many obvious reasons. At VR Business Sales, we don’t let any interested buyer know anything about the business other than the basics without being vetted and having signed confidentiality agreements. In particularly sensitive situations, we won’t do anything until we run the name of the buyer by you.