Whether selling your business is on the horizon or still a decade from now, it is important to know the types of buyers that are going to purchase your business. The two basic options include the financial buyer or the strategic buyer. 

the financial buyer 

The financial buyer is buying the rights to your future profit stream, so the more profitable your business is expected to be, the more your business will be worth to them.  

Strategies that are key to driving up the value of your business in the eyes of this buyer include: 

  • de-risking it as much as possible,
  • removing the owner from day-to-day operations,  
  • creating recurring revenue,  
  • reducing reliance on one or two big customers,  
  • cultivating a team of leaders, and 
  • generating a  repeatable process for delivering new business. 

the strategic buyer 

The alternative is to sell to a strategic buyer. They will care less about your future profit stream and more about what your business is worth in their hands, typically calculating how much more of their product they can sell by owning your business.  

Strategic buyers are usually bigger, so the value of being able to sell more of their product or service because they own you can be substantial. This often leads strategic buyers to pay more for your business than a financial buyer ever would. 

preparing for every eventuality 

The question is: why bother making your business attractive to a financial buyer when the strategic buyer typically pays so much more? 

The answer is that true strategic acquisitions are very rare. Each industry usually only has a handful of strategic acquirers, so your buyer pool is small and subject to many variables out of your control; the economy, interest rates, the competitive landscape and a whole raft of other variables can all impact a strategic acquirer’s appetite to buy your business.  

Think of it this way: imagine your child is a promising young golfer who’s intent on going pro. You know that becoming a professional golfer is a long shot, fraught with unknown hurdles: injury, the wrong coach, or just not having what it takes to compete at the highest levels. Do you squash her dream? Of course not, but you do make sure she does her homework, so if her dream fades, she has her education; you make sure she has a back-up plan.  

The same is true of positioning your business for an exit. Sure, you may want to sell your business to a strategic buyer in a spectacular exit, but a financial acquisition is much more likely, and financial buyers are looking for businesses that have done their homework – businesses that have worked hard to become reliable cash machines. Properly preparing your business for sale will ensure that a range of buyers will see all aspects of your businesses value and give you the best chance of a successful exit.  

So, whether you want to sell your business soon, need assistance building a valuable asset for the future, or just want to talk through your plans with an expert business advisor, contact Brad Dean on 0417 886 352 or at b.dean@businessdepot.com.au