Simplicity And Honesty With Buyers Makes Sense
Many sellers try to guess what buyers are looking for in assessing the value of their company. Understandably, their guesstimating is heavily influenced by their own hopes and emotions, unless the seller is experienced in making such transactions. And even then it can be difficult.
One strategy that sellers sometimes consider is deluging potential buyers with “bells and whistles” – information about their business that seems important to them, but not necessarily to the buyer. Most buyers want to know a few simple things:
- Is your revenue increasing or decreasing?
- Is your profitability increasing or decreasing (especially the past 12 months)?
- How quickly can a purchase price (investment) be recouped?
- What does the marketplace look like for the near and long-term future?
- How strong is the management/organizational structure of the company?
- Are there any problems I can’t see?
Most buyers are cautious, as well they should be, in making a significant investment. Their caution can become suspicion and disinterest with misleading information (e.g. misstating revenue), or concern can be reduced with honesty and recognition of the buyer’s perspective by:
- Clearly identifying revenue and trends.
- Clearly itemizing the elements of your adjusted EBITDA (especially the past 12 months).
- Identifying specific growth opportunities for the future.
- Directly responding to all questions.
On this last point, a potential seller recently told me that no one would buy his company if they knew the truth about his precipitous decline in revenue.
He wasn’t right, because someone could have been interested. His marketplace was filled with opportunities, but the owner’s management style had been very destructive, leading to constant turnover in key positions.
By the way, I didn’t list his company.