Do you understand the “buyer-seller mismatch” and how business owners can improve their odds of selling a business?
The “buyer-seller mismatch”is a phrase some in the business broker/M&A community use when a business for sale struggles to attract buyers.
- Buyers hunt for a business, often with limited criteria for the “right business”, but at a minimum, they want a business with good systems and financial reporting (and profits, in case you were wondering)
- Sellers often go to market with weak systems and financial reporting, but sometimes decent profits (if you doubt me, pick a dozen random listings on any business-for-sale site, register as a buyer, sign the NDA, and you’ll see what I mean).
Getting a business valuation can be a good start, but it is more like a report card (or a canary in the coal mine).
Business owners have to ACT on that report: it is really the result of their efforts over many years.
Here is a short list of what many buyers are looking for in a business – as it relates financials and other metrics. There are many others to consider, but this list is a good start:
1. Three years P&L and Balance Sheets plus current year interim, in PDF and Excel
– Annual and monthly
– Estimate for current year and forecast for next year
If you carry a lot of accounts receivable, you may use accrual accounting, so be prepared to show accrual and standard (cash) accounting financials, since your tax returns are adjusted for cash accounting. Buyers will need to understand the difference.
2. Sales analysis for past 2-3 years plus YTD, (examples)
– for a retailer or manufacturer, sales by product
– for a pharmacy, sales by patient (anonymized)
3. Top 20 customers: 2- 3 years plus current year
4. Marketing metrics (hugely important for online businesses, as buyers are trying to correlate marketing efforts to sales)
– Email
– Social media
5. Growth opportunities and how they relate to the financial forecast
6. Explanation of “anomalies” in the financials:
– Family members who may not really work there
– Large variation in expenses:
– Insurance increase or decrease
– Legal expenses
– Cost of goods sold
Financials are the common “language of business”, a language with which you need to become more fluent, if you want to successfully sell your business someday.
After reading through all this, how do you feel about your business? If not great, then now is not the time to go to market. Instead, spend time working on your business with your accountant, bookkeeper and/or controller/CFO, to get the reporting right.
If you get the reporting right, and you still don’t like the results, then you need to change how you do business. If you don’t, you’ll likely end up like 80% to 90% of businesses that go to market: UNSOLD.
If you are a business owner who’d like to think more deeply about your business, download the free guide , “What’s Next For Your Future”
