Are you dreaming of the day that you find a buyer for your business?
You may even be at the finish line and ready to close the deal, right now.
Either way, congratulations. Your hard work, sacrifice, and determination made the difference.
That said, are you prepared to gamble your future on a buyer that you think you know, but don’t?
Wait a minute, you say, my exit team and investment banker are here to protect me. What’s the issue?
When it comes to selling your business, you have once chance to get it right, and you better make it count.
There are buyers and then there are buyers.
The perfect buyer for one business may be a nightmare for another one.
How do I know, and why should you care?
I was that kid who started his EdTech right out of school with no money, experience, or team.
The truth is I had no business being in business. My saving grace was my grit and passion, which kept me in the game long enough for success.
I received an unsolicited offer from a sophisticated and savvy buyer. In reality, the buyer was a wolf in sheep’s clothing. I didn’t know what I didn’t know, and the buyer knew it.
I said “no” to a 7-figure offer based on three times EBITDA knowing I could do better. On the spot, I committed to master the art and science of selling a business.
Two years later, I said “yes” to a 9-figure offer based on thirteen times EBITDA from a different buyer.
What made the difference?
How do you spot the right buyer for your business and stay away from the wrong one?
Keep reading to find out.
Want To Retire Rich And Happy? You Better Perform Due Diligence On The Buyer For Your Business
Diligence is the mother of good fortune – Benjamin Disraeli
Do you know the “D” word that strikes fear in the heart of sellers?
When it comes to the buyer for your business, if you’re like most sellers, your sole focus is on the check clearing.
Don’t fall into a sense of security believing your exit team and investment banker have your back.
The truth is your exit team focus on getting the deal done.
End of story.
No two buyers are alike.
Make it your business to know the business of your future buyer.
A quick story
When selling my EdTech, I insisted on an auction to help increase company value.
After creating a shortlist of buyers, I performed due diligence on each buyer.
What did I do?
I spoke to owners who sold to the buyers. Performed a deep dive on the management team for each company. Talked to anyone and everyone who knew the buyers.
What I learned shocked me.
Whether you realize it or not, the buyer for your business is playing a zero-sum game. Your loss is your future buyer’s gain.
You don’t know what you don’t know until you do.
To the shock of my exit team, I rejected bids that had the highest value.
Due diligence on the buyers uncovered characteristics and tendencies that weren’t flattering.
What characteristics and tendencies you need to know in the buyer for your business?
Keep reading to find out.
To Succeed And Prosper, Make It Your Business To Know The Business Of Your Future Buyer
The difference between something good and something great is attention to detail – Charles R. Swindoll
If you want to succeed and prosper, know the motivatons of your future buyer.
The buyer for your business falls into one of three categories of buyers.
First, are strategic buyers who often pay the highest value for a business with a focus on the long-term. While profits are important, synergy takes priority.
Strategic buyers desire to increase revenues and industry reach. Strategic buyers have the people and skillset to run your company without you and your team.
The second group is financial buyers. The focus of financial buyers is to buy companies and combine them for a higher price.
Financial buyers focus on the short-term with plans to sell your company for a higher profit. Financial buyers prefer to keep you and your team in place to run your company.
Last but not least is a hybrid buyer known as the family office. Family offices are new on the buyer’s scene. Wealthy families run their family office with a long-term goal of increasing wealth.
Family offices are like financial buyers with their preference for higher returns. It’s also family offices who run like strategic buyers with a long-term focus.
Which of the three possible buyers for your business are best for you?
There’s no “right” or “wrong” answer.
What is important is knowing the motivation of the buyer for your business.
But even knowing the motivation of your future buyer isn’t enough.
Do you know the one thing many buyer’s do that zap your profits?
Keep reading to find out.
Do You Know The One Thing Your Future Buyer May Do That Puts Your Deal In Jeopardy?
In a major matter no details are small – Jean Francois Paul de Gondi
Do you know the one thing the buyer for your business may do that puts your business in harm’s way?
Most sellers don’t, but should.
What’s this one thing?
How the buyer for your business pays for the transaction.
The best-case scenario is the buyer paying for your transaction from cash in the bank.
Cash in the bank ensures a deal that closes.
The buyer for your business may finance the transaction with outside money.
What many sellers don’t realize, until it’s too late, is that financing a transaction adds risk and cost.
The risk of financing is that market conditions change. As a result, funding becomes too expensive or not possible.
Your deal is dead.
If financing does take place, the buyer incurs origination fees and interest costs. Many banks consider buying a business risky. As a result, buyers turn to secondary markets.
Secondary markets have higher interest rates than banks.
A quick story.
Our EdTech was both financed by the buyer and closed two weeks before the financial meltdown.
When asked if the transaction would have happened if it took place two weeks later, the buyer said, “not a chance.”
It was only at this point that I realized the big risk I took without even realizing it.
As it turns out, the market conditions made the financing for my buyer too expensive.
Speaking of financing, who pays the origination costs, interest, and other expenses?
If you said your company, you’re right.
Why does this matter?
Keep reading to find out. What you’ll learn will shock you.
How The Structure Of Your Deal Can Make It No Deal
Little details have special talents in creating big problems! – Mehmet Murat Ildan
Most sellers aren’t aware that the structure of your deal can make it no deal.
Unfortunately, most sellers don’t realize this until it’s too late.
What’s the one thing the buyer for your business can do that harms your financial future?
Have you take on as much risk as possible.
How do buyers take risk off themselves and place it onto sellers?
Enter the infamous earn-out and performance guarantees.
In an earn-out, the seller agrees to have the buyer keep part of the proceeds from the sale. When specific targets happen, sellers receive the much-anticipated payout.
Buyers want sellers to agree to an earn-out for one reason.
Earnouts don’t usually happen.
Buyers keep the money, and sellers lose out.
Most buyers pass along the origination fees and interest costs to your company.
When this happens, you’ll watch your profits vanish right before your eyes.
When you confront the buyer for your business, you’ll hear to check your agreement.
The area out of your control is expenses.
Many buyers will “buy” the loyalty of your former employees.
Think travel perks, increased budgets, and expense accounts for your former employees.
From the buyer’s perspective, the money that budgeted for you goes to the employees.
In the buyer’s mind, this is a great deal.
Now you know why the structure of your deal can make it no deal.
Last but not least is one more thing about your future that should ignore at your own risk.
Do you know what it is?
Ignore The Reputation Of The Buyer For Your Business At Your Own Risk
You are what you do, not what you say you’ll do – Carl Jung
Ever wonder where the term “buyer beware” comes from?
When it comes to selling your business, ignore the reputation of the buyer at your own risk.
A quick story.
The auction for my EdTech had buyers fighting over who would buy the business.
After creating a shortlist of buyers, due diligence took place.
To the shock of the exit team and investment bankers, the list became shorter.
Buyers disqualified from the process had some of the higher valuations.
The reputations of the buyers were less than honorable.
Some buyers had a reputation for the “bait and switch” approach. In this scenario, the buyer’s letter of intent with a high at the start and became much lower later in the process.
Other buyers had a reputation for breaking promises.
When it comes to selling your business, you have once chance to get it right.
You better make it count.
Read and prosper from Do You Know The 7 Mistakes Every Buyer Wants You To Make When Selling Your Business?.
My exit team, as talented as they are, focused on getting the deal done.
Admirable at best, and dangerous at worst.
Selling your company is the “easy” part.
Ensuring you receive both the highest value and your money is the “hard” part.
Given a choice, I choose a buyer with a lower valuation and a great reputation.
And so should you.
The buyer for your business knows that you don’t know what you don’t know, and prefers it this way.
If you want to retire rich and happy, and I know you do, know that you have once chance to get it right.
It’s a sad day when sellers believe that the only due diligence taking place is on their companies.
Due diligence starts and ends on the buyer for your business.
When it comes to the buyer for your business, you must know your buyer better than anyone else.
Learning your buyer’s motivation, reputation, and background helps you dominate and win.
In this article, I’ve revealed five strategies that transformed the sale of my company.
If I can do it, so can you.
Where do you start, and what do you do?
Start with each principle and master it before moving on to the next. Before you know it, you’ll have mastered the process of knowing how to find out about your future buyer.
You can do it. I know you can.
The great news is that you already have everything you need. Right now.
So what are you waiting for?
Here’s to you and your success!
Your Biggest Raving Fan,