selling your business Archives - TAB Corporate

5 Things Strategic Buyers Will Look For in Your Business

Silhouette of businessman in keyhole
Is selling your company part of your exit strategy? Here are 5 big considerations a strategic buyer will look at when evaluating the value of your business.

1. Purpose for Buying

The first thing a strategic buyer will consider is their own purpose for being interested in purchasing your business. Some reasons a strategic buyer might be interested in purchasing your business are:

To gain market share and increase sales volume simply by eliminating a piece of the competition. Think about your company’s position in the market and how that position will help or hurt your ability to sell at a premium price.

To help the strategic buyer gain industry competencies in areas that their current organization is lagging. Take a look at your potential buyers and learn about their businesses. How does your organization differ from theirs in a way that will appeal to their long-term success?

To enter a new market. They may be interested in entering your geographic market, appeal to your demographic market, or to diversify their products or services—just as a couple examples.

2. Dependency on Current Owner(s)

The less dependent the sales and operations of the business are on you and/or other owners, the more valuable your selling price is going to be. A general rule of thumb is that no more than 10% of the sales of your business should be dependent on the efforts and connections of any one person—particularly the owner. Operations also need to be largely independent of your direct involvement.  Ask yourself (or, better yet, try it): Would my business survive for 90 days without me? If not, it’s time to start developing and executing a plan to make your business run without you.

3. Strength of CFO & Financial Records

This is a critically important factor that a strategic buyer will certainly assess. The lack of strong financial management and statements will usually cost you much more in the selling price than the cost of preparing them. If you are lacking in this area, consider working with your CFO to bring in a 3rd party financial expert who can help bring systems and statements up to date.

4. The Strength of Your Management Team and  Information System (MIS)

Excluding yourself, how strong is your existing management team? Is it strong enough to stay in place and be able to run the business when you are gone? How strong is the relationship between your management team and suppliers, clients, and employees? Does it consist of young blood that a strategic buyer can expect to develop to improve processes and assets in the future? A strategic buyer will be considering these questions when reviewing the strength of your existing management team when determining if they want to buy, as well as how much your company is worth.

Similarly, how effective is your MIS? Even though a strategic buyer might replace it with something they prefer or are using elsewhere, the lack of a state-of-the-art MIS is usually an indication that you don’t have all of the management tools you need to run your business in its most profitable manner.

5. Strength of Sales Team

Strategic buyers will look at the professionalism and turnover of your sales team. Lower turnover will give them more confidence in the continuity and accuracy of sales projections. Again, they will also look at how dependent your company’s sales are directly on you as the owner. The less dependent sales are on you, the higher they will value your business.






 

What’s Your Personal Net Promoter Score – And Why Is It Important?

Five matted yellow web button stars ratings with reflection. Bla

Recently, I had the privilege of attending a fascinating talk by John Warrilow.  John is the best-selling author of Built to Sell: Creating a Business That Can Thrive Without You.  Built to Sell discusses key attributes a business owner should be aware of as they prepare to sell their business.  Some recommendations include: not being too dependent on the business owner and not relying on a single customer. The most sellable businesses are teachable to employees, valuable to customers, and generate revenue in a way that’s repeatable.

One of the most important attributes of the value of a company is its Net Promoter Score ®. The Net Promoter Score (NPS) was developed by Fred Reichheld from Bain & Company. Reichheld determined that a high score means your customers will continue to buy from you.  A mid-range score indicates they may be shopping around or at least open to alternatives. A low score means you better pacify or replace the unhappy customer, and fast.

Studies have shown that his NPS score is one of the best predictors of company growth.  In fact, you’ve probably noticed that you’re being asked the following question more frequently on customer surveys:

On a scale of 0 to 10, how likely are you to recommend us to a friend or colleague?

If you don’t have a customer survey, and want to start one, this question is a good place to start. The query has become an industry standard in measuring loyalty amongst existing customers, and is a great way to tell how likely consumers are to return. The net response to this question across all of your customers will determine your NPS.

NPS scores for companies like Apple, USAA and Canon are incredibly high. You might attribute the high score to everyone knowing these huge companies, or to the fact that giant corporations have the resources to produce the best products and best brands.  Some of this is true- Apple, USAA Canon etc. do have great products – which is a sign that they listen to their customers and deliver what consumers want.  But they also have great service. And great service doesn’t somehow just happen better in these large and successful organizations. These great service levels are created by the outstanding service that their employees deliver day in and day out as they interact with their customers.

If you are an employee, I would ask you to assess your personal NPS.  Here’s a really simple way to get a sense of where you stand:

  • Take a few minutes to reflect on your last 10 – or if your interactions are more complex, your last 5 – customer interactions.
  • Now, think about the next person those customers talked to. If you’re in a B2C business, maybe it was a family member or friend. If you’re in a B2B business, it was probably a co-worker.
  • What do you think the customer told their friend or colleague about your interaction?
  • If they said something positive, you are helping your company’s NPS. If they said something bad, you are hurting your company.
  • What if they took the time to seek out a friend or colleague, and tell them what an exceptional experience they just had? That’s what USAA customers do.

If you’re a business owner, ask your employees to reflect on their personal NPS, then take it one step further. Start surveying your customers using the simple questions above.  Or, lookup the simple method to measure an NPS and plot yourself against the average (it’s about 5-10% for a typical company).

If your score is average, or a little better than average, well done! If not, you need to get to work. If you need help assessing your company’s salability or have questions about how to fully leverage your NPS, contact TAB today.