Knowing who will buy your business means you already have the core perception required for strategic business planning. You know that you will inevitably transfer your business interests, whether you choose to do so voluntarily or not. Owner-managers of businesses need to be aware of and plan for the inevitable transfer. The owner and company will eventually separate. The main unknown is when.
The estate planner waits to hear the client say,
“When I die,” rather than “If I die.” The same applies to business strategy. If the client denies the inevitable transfer of the business, they can’t be successful. It is possible to envision the potential buyer and terms of the transfer once the inevitable transfer has been acknowledged. The primary goal of the business strategy should be to transfer the business to potential buyers and known buyers at the highest price. This is how you can maximize the value of your business.
You can buy a business interest in return for cash or other consideration.
When searching for a buyer, it is helpful to ask the following question: “Do you know anyone who would be willing to give me cash for my business interests?” The logical buyer for most businesses is someone familiar with the business and can raise the money to purchase it. This person will likely be a current employee of the company. It will also be easier to find a buyer if the buyer is someone you are familiar with and knows the business well. Selling to an existing business owner has its downsides.
A person in the business is more knowledgeable than someone outside the company. In other words, an inside buyer will only pay for certain knowledge or goodwill if they already know them. A third-party buyer outside the company will pay for this knowledge. To maximize the value of the business, the buyer should be a third party.
Do you have any contacts with third-party buyers? Most likely not. You should find a third-party buyer if you don’t know one. This search can take some time and should be planned for in the strategic plan. What can you do during the interim? What happens to your business’ value if you are disabled or die during this interim period? What will it pay to your family? The only buyers who will know the potential buyers are those involved in the business and those who may be owners. An owner agreement should ensure that each business’s interest is valued. An owner agreement should be in place for foreseeable trigger events, such as death, disability, termination, or withdrawal, and at an acceptable price. This will provide certainty of value for each owner.
Role-playing is a great way to find unknown buyers. You will find buyers for your business in certain groups:
investors, competitors, and similar companies in other countries seeking growth. Assume you are in their shoes and ask them if they would buy the business interest. If you don’t think so, ask why not. If you feel that the purchase is not rational, then the first step is to pass the rationality test. The purchase of any business interest must be reasonable. This will allow you to target people interested in your business. You need to meet these potential buyers to determine if your role was correct. Ask, “Why not?” If there isn’t interest, ask, “Why not?” This is the best feedback you can get about how well your company is managed.
You must understand the potential third-party buyer. In addition to guaranteeing insider sales for business interests, the owner agreement must also allow for the transfer of a controlling interest to a third-party buyer. Most owners will agree that everyone’s best interest is receiving the highest value for their business interests.
Planning and managing your company is easier when you have the buyer in mind. Accounting records must be up-to-date. Maintaining records of human resources must be current and in compliance. All regulations must be observed. All taxes must be paid on time. To verify the business’s status, use the same diligence checklist that a sophisticated buyer would.
Planning and managing your business from the perspective of potential buyers will help you see the benefits and get to know them. When the inevitable sale occurs, your business will be more valuable and sell for a higher price. Instead of denying that the inevitable will happen, you can ensure that the transfer provides maximum value for your business interests. It would help if you found out who will buy your business to maximize your business interests.
