Assuming a particular industry has been pre-selected, there are several criteria that an investor is seeking when evaluating various businesses to purchase within that industry.
“It is important for a business seller to know these criteria” says Achim Neumann, President, A Neumann & Associates, LLC, a leading New Jersey-based mergers & acquisitions and business brokerage firm, “as a business seller fully addressing these investor concerns and requirements, will be more successful in selling a business”
So, what are the three most important components that facilitate a ‘go ahead’ on the investor’s end?
The investor wants to see motivation on the seller’s part that they are truly wanting to transition the business. A lack of seller motivation can express itself in a poorly written prospectus, no preparation, lack of business valuation, long response times in due diligence, or dirty and unorganized facilities. A long delay in answering to a full-price offer is typically a dead giveaway of an unmotivated seller.
Investors pick-up on such lack of motivation very quickly and immediately shy away. Simply speaking, it just costs too much money and time for an investor to explore a business purchase, and the potential early warning signs that a seller will back out last minute is just a risk no investor wants to assume.
Professional Investment Package
Every investor wants to see a professionally prepared investment package, often called Confidential Memorandum, prospectus or CIM – long before actually meeting with a business owner. The aforementioned package needs to outline the specifics of the business, including marketing, sales structures, product description, research & development, as well as past and projected financials. Most importantly, the package needs to describe the competitive advantage of the business and growth aspects for the enterprise, as no investor buys a business for its status quo.
On a few occasions, sellers say to ‘just bring in the buyer’, but rest assured, not a single business buyer will travel or even consider such invitation without a prior detailed presentation of the business. Such a statement underlines already a significant lack of motivation on the seller’s part.
Most investors require an accredited business valuation, not only for their own sake assuring themselves that an independent third party has reviewed the business, but said valuation is also needed for the investor to obtain a preliminary lending commitment from the investor’s bank to finance the acquisition.
Without the valuation on-hand, the investor cannot proceed with an offer, but will then require a valuation first and will in essence delay the acquisition process for several weeks or months. This delay will result in the deal losing steam.
In conclusion, business sellers are well advised to the above-mentioned factors, as failing to do so – even for just one criteria – will most likely not result in the transfer of a business.
[The blog contains excerpts out of the recently published book “ The Road Beyond – What Nobody Tells You About Selling a Midsized Business by Achim Neumann]
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business broker firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating and over 5,000 valuations performed through its affiliation, the company has senior trusted professionals with a deep knowledge base in multiple field offices in Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, DC, Virginia and North Carolina. The firm’s competitive fees are based on successfully completing