The more you prepare in advance, the less stressful this stage becomes.
Real World Example
One business looked great on paper. Good track record, Stable sales. Healthy profit margins. All the numbers looked good. So the next stage was agreeing heads of terms and the due diligence stage began. It soon became aparent that this business, with nearly 30 staff, was hugely dependent of the owner. Everything and everyone was organised around the owner. And too many of the decisions being made were with the owner, in his head, with no process or system to take that load away into something more systemised.
The end result was not a reduced price, it was a failed sale. The acquirer saw the risk in trying to integrate this business with more standardised processes and systems would have put their own business at significant risk by eating up too much management time and resources. That 'business as usual' with their own business would be at risk. Sometimes it better to realise you might be biting off more than you can chew.
It's so important that owners remember that buyer are paying for certainty, not hard work, and that profit is not the same as value.
So here are some of the areas to think about that don't show on a set of accounts that buyers should be looking at:
Customer Concentration
If a significant proportion of your turnover comes from one or two customers, buyers will immediately assess the risk. They'll ask whether those relationships are protected by contracts, how dependent they are on the owner, and what would happen if a major customer was lost after completion.
Owner Dependancy
Can the business continue to perform without you? If key customer relationships, commercial decisions or operational knowledge all sit with the owner, buyers will see additional risk and may seek to reduce the price or retain part of the payment through an earn-out. Buyers do not buy a business to double their workload!
Sustainable Profits
Buyers aren't simply interested in historical profits. They want confidence that future profits are sustainable. They'll look closely at recurring revenue, margins, customer retention, sales pipeline and whether recent performance can realistically be maintained..
Commercial Processes
Well-run businesses inspire confidence. Buyers will look at sales processes, pricing discipline, reporting, CRM systems, management information and forecasting to understand how well the business is managed and whether growth is repeatable rather than reliant on individual effort.
Stay in control of your pricing
Ask yourself: if you wanted to increase prices by 4% tomorrow, could you? Many businesses can't because prices have evolved through years of exceptions and manual adjustments. Good systems allow prices to be reviewed and updated by customer, product or service quickly and consistently. As an owner, you need to stay in control.
Key People
Strong businesses aren't built around one person. Buyers want to see capable management, succession planning and key employees who are likely to remain after the acquisition. If too much knowledge sits with too few individuals, perceived risk increases.
Future Growth Story
Perhaps the biggest question buyers ask is: 'Where does the business go from here?'
A clear growth strategy, supported by market opportunities, new products, pricing potential or operational improvements, gives buyers confidence that the business can continue to grow after acquisition.
The Bottom Line
Many business owners prepare thoroughly for financial and legal due diligence but overlook the commercial questions that buyers are almost certain to ask.
Those commercial issues often determine whether the agreed price holds, whether additional conditions are introduced or whether the deal completes at all.
The best time to prepare isn't after Heads of Terms have been signed—it's well before you ever decide to sell.
At Speare Consulting, we help business owners see their business through a buyer's eyes, identifying the commercial risks that can affect value long before they become obstacles to a successful transaction.
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