Table of contents
Succession and company sales - 7 essential questions that every potential buyer asks.
Are you planning a succession as part of a company sale? Prepare for the sale and know the questions that every buyer asks themselves and that will have a significant impact on the company value that can be achieved in the end.
Find answers, Increase your business value and be well prepared for the negotiations on the sale of the company.
1. Is the seller really ready to let go?
The sale of a company is an emotional thing. For many, their own company is like their own child, which they have raised and cared for over years and decades. The human question therefore arises as to whether one is ready to let go. The buyer is aware of this conflict and asks himself the legitimate question:
"Can the seller really let go?"
A potential buyer may want the owner and/or founder to accompany them for a certain period of time, but certainly only for a certain period of time. If the buyer notices that the emotional bond to the company is too strong, he may refrain from buying. Why? Because he fears not really sitting in the "driver seat" and having the decision-making power over (then) HIS company. Selling a company means letting go.
So, are you ready to let go? Well then, create independence from yourself!
If you clearly see this with " yes ", you are already able to establish clear processes that make the company independent of you. Convert processes in the company in such a way that you are informed, but no longer have the "last word" on every decision.
PRACTICAL NOTE:
This is perhaps the hardest part of preparing for the sale of the company. But you will see: It's worth it. Not only will you (re)gain freedom, but above all it will make the company's solution easier and enable a successor to take over the helm in a shorter transition period. This creates trust for the potential buyer and thus increases value.
2. Is the business model still intact ?
Without an intact business model, it is always difficult, if not impossible, to sell your company. Therefore, no buyer will consider buying a company if this question is not answered unequivocally in the affirmative.
Especially in the age of disruptive business models, it is therefore important to know where you stand and in what form the business model may be shaped by digital platforms or technologies, such as Artificial intelligence or Blockchain are threatened. Is there an opportunity here to strengthen certain areas technologically before the competition?
PRACTICAL NOTE:
Even if you can no longer tackle this issue, you will gain a plus point in the sales negotiations at the company sale by showing that you have solutions and can show ways.
If you can't find any answers to this, a buyer won't find an answer that would require a Reasonable enterprise value justify.
3. What is the market penetration and the competitive situation?
This question is answered day by day in a successful company and is put to the test again and again. What is usually missing is a corresponding Documentation and Backing up with facts, such as market studies, customer satisfaction surveys, and so on . This is indispensable for a good company presentation in the sales process. It is advisable to prepare well and to create or archive appropriate documents.
4. Is there an investment backlog and if so, in which areas?
It is important for a potential buyer to know their total investment. Every buyer will therefore ask himself or herself what other investment costs he/she will have to pay in addition to the purchase price. Most buyers are aware that in many companies, due to the planned sale, larger investments are no longer necessarily initiated, but leaving the buyer in the dark about this during the purchase process is dangerous. On the one hand, a buyer is not stupid and will draw conclusions about the purchase price, and on the other hand, certain risks and commitments regarding the condition of investments will become part of a warranty catalog.
PRACTICAL NOTE:
Important investment decisions are often delayed with regard to an intended company acquisition.
This is often the case in in two respects counterproductive:
- On the one hand, this hinders further growth or possibly cost reductions and thus Lack of income .
- On the other hand, a potential buyer will usually want a Valuation discount as he is aware of the investment backlog.
So in the end, you pay one way or another. Very likely even twice, as you forego additional income and accept the malus.
In addition, if you delay research and development, you may have to the tax incentives for research and development. See the corresponding article.
5. Are there synergies?
A potential buyer is always looking for synergies that justify his investment.
External synergies
These can either be external, for example customer and market access or complementary products for the potential buyer? Cost savings resulting from merging two areas of the buyer and seller. The seller has no influence on these synergies. However, if he knows about these advantages, you can positively influence the purchase price negotiations.
Internal synergies
The situation is different with internal synergies. The seller has this very well in his hands.
In many traditional companies, business units are held on, even if they no longer make a significant contribution to the company or even generate losses.
The reasons for this can be manifold. Often the company is based in 3. or 4th generation to this business area. A separation would be seen as a "betrayal" of tradition, heritage or the employees concerned.
The opposite is the case. Instead of promoting and strengthening the areas that are doing well, a lot of time and money is flowing into business areas that are no longer "running". Necessary restructuring will not be tackled or put on the back burner. A potential buyer recognizes this synergy and will almost certainly make this decision for you after the purchase. In addition, he will (presumably) use a Valuation discount fix. Get ahead of this and look for the best solution for the business unit and your employees.
6. Are many customer and market positions possibly only dependent on personal contacts of the seller?
In the vast majority of cases, one of the main motivations of the buyer will be to open up new customers or markets through the acquisition. Good customer access therefore becomes a Appraisal surcharge lead.
However, it is not uncommon for customers to be directly dependent on the entrepreneur's contacts and trust has grown over many years and decades.
For this reason, the buyer is faced with the question of how to communicate with customers on an equal footing in the future.
PRACTICAL NOTE:
Of course, this also depends a lot on the personality of the buyer and his employees. However, you can build up your own employees in the run-up to the sale of the company, who are also involved in direct customer contact, at management level. Ask yourself which employees enjoy your trust and have the appropriate appearance and involve them.
7. Are there any other risks that I should be aware of when buying a company?
In addition to the obvious opportunities and risks, every buyer wonders whether there are other risks. For this reason, almost no company sale takes place without the potential buyer a so-called Due diligence audit. You can find out what this is in this blog post: Buying or selling a company: You should definitely know these 3 types of due diligence review!
Risks that arise in the course of due diligence are always part of a valuation discount and/or the guarantee catalogue. The seller would therefore do well to get an idea of the risk profile of his own company in advance.
PRACTICAL NOTE:
In the run-up to the sale of the company, make a Risk Inventory and evaluate the identified risks according to probabilities. Try to play through certain risk scenarios and find answers to how you react to them.
Examples:
- the main customer drops out
- a new competitor appears
- Key employees leave the company
- Product liability risks
- pending litigation
- Tax risks, etc.
The Risk Inventory gives you a good overview and gives you a plus in the sales negotiations. A buyer will ask about exactly these risks. Dispelling these is a point that should not be underestimated and creates trust.
8. Conclusion
Now you know the essential question that every potential buyer asks himself before buying a company. Be prepared if a potential buyer of your business asks these questions. This dispels concerns and creates trust in the negotiation of the company's value. Once you have the answers, you can use them as a starting point and address identified problems or find answers to them.
We are happy to find out what a cooperation can look like and how we can do it for you in a free and non-binding introductory meeting.
Duration: 30 min.
