Ask the Experts!

Today’s Question of the Day is being answered by guest experts, Rich Miles and Ben Turner. Rich and Ben are with Capstone Business Advisors, a Brentwood, Tennessee-based company that assists privately-owned businesses with acquisitions and exit strategies.

Question: What does a closely held business owner need to do to make the business attractive to a potential buyer?

Answer: Buyers are attracted to businesses that have real and sustainable profits. Owners of privately-held businesses typically operate their businesses to maximize personal benefits and minimize taxes.  That operating strategy usually minimizes profits.  If the owner wants to make the business attractive to a buyer, the owner likely needs to think about adjusting their strategy.

Once an owner has demonstrated profitability over a period of two to five years, it is important to recognize who the potential buyer(s) might be and what is attractive to them. With that in mind, the business owner can make appropriate adjustments to their business and their expectations.

There is a difference in making a business attractive enough to get the initial attention of buyers and making the business attractive enough to close a successful sale transaction.  The difference lies in the enormous scope of material that could be explored by the prospective buyer during the due diligence process.

In due diligence, a buyer could investigate more than fifty different aspects of a business.  The aspects can be boiled down to 4 general considerations of a buyer as they weigh risk/return and ultimately value:

1.       Financial

2.       Credibility

3.       Transferability

4.       Owner(s)

A business owner planning to sell the company may find that an objective and experienced assessment of the business is helpful in understanding how attractive the business is to the various buyers now.  The business owner can also find out how much work, if any, needs to be done to improve the business’ appeal prior to a sale.    Seeking that kind of help well in advance of putting the business on the market can increase the chances for sale and help maximize the amount of money they get to keep.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.