Article: Commercial
Identifying and Qualifying Buyers for your Business with Anna Collard
To be able to identify and compile a list of potential buyers from within your industry and from other sources we need to compose a document that sets out all the relevant information about your business so that a prospective purchaser may appraise the opportunity.
This document must be prepared with great care to ensure it is comprehensive, accurate and honestly represents the business. Consumer protection legislation and regulations require that a business owner must disclose any information that may be detrimental to the ongoing profitability of the business, or relevant in the purchaser’s decision to proceed. Your broker will coordinate the gathering of information and prepare this document in consultation with your other professional advisors. We refer to this document as the Information Memorandum.
Topics covered in an Information Memorandum could include:
Executive Summary, Background Information, Management Organisation and Control, Staff Infrastructure, Historical Financial Information and Comments, Financial Performance and Outlook, Opportunities and Potential, S.W.O.T. ( Strengths - Weaknesses - Opportunities - Threats) Analysis and Business plan, detailed breakdown of Tangible and Intangible Assets, Valuation Appraisal, Product/service positioning, Premises, Facilities and Lease details, Marketing Materials, Reasons for Sale, other information and appendices.
Your broker will, after signing a confidentiality agreement, discreetly approach some of the potential buyers which are listed on their database and seek expressions of interest. This is carried out in strictest confidence and it will be discussed with you before any information is disclosed.
A marketing campaign will be prepared, together with a monitoring programme to measure advertising effectiveness and response. Your broker will keep you informed of progression a regular basis.
What do buyers look for?
History of positive earnings and cash-flow, stable staff and infrastructure, strong brands in growing markets, long-standing customer and supplier relationships, genuine reason for sale, acceptable ROI (Return On Investment), potential for increased productivity, sales growth and profitability, possible vendor finance, depending on the size of the enterprise, a good infrastructure that demonstrates the business can operate successfully without the current owner.
The qualifying process is designed to confirm that the buyer is in a position to complete the purchase, and is motivated to do so. Business owners who attempt to sell their businesses themselves often report that the process of meeting and vetting potential buyers is the most difficult and time consuming of all.
Distinguishing legitimate buyers from among the raft of respondents, that may include time wasters or even inquisitive competitors, requires a great deal of judgment and background research. Your broker would be required to handle this delicate and often complex process with integrity and discretion, ensuring that any sensitive information that could identify the business is withheld until the purchaser has signed a legally-binding confidentiality agreement.
Next week we will focus on the Marketing plan and the sale process.
“The authority on selling business”
- LINK Business Brokers Ltd MREINZ
