In this extract from his book The Exit Roadmap, business coach Chris Spratling explains how to get into the mindset of a buyer when selling your company

One of the key points to remember when in the process of selling your business is that it’s through having multiple, enthusiastic potential acquirers that you maximise your sale price.

Therefore, you need to see things from more than one perspective.

What’s important to them?

What might attract them to buy your business?

And how can you best communicate that acquiring your company is the most obvious solution to their needs?

Let’s look at the common reasons why a company would want to acquire your business.

In reality, the reasons vary wildly and may well prove difficult to decipher.

However, if you can gain some insight into a buyer’s motivations, you’ll invariably be in the best place to maximise the value of your business throughout the sale process.

Let’s look at some of the most common buyer motivations that I’ve come across.

To increase their chances of success

While the barriers to entry in today’s competitive business landscape are lower than ever, the costs of competing successfully continues to rise.

Consequently, buying an established business, as opposed to launching one onto the market, is something that some buyers find less risky and hence more attractive, compared with the cost of establishing a leading business themselves.

To increase their market share

Buying another business that already has a strong foothold in the buyer’s own market allows that buyer to increase their market share quickly.

With this comes the ability to charge higher prices and negotiate larger economies of scale with suppliers, adding up to more profits and increased resilience in the marketplace.

A common example of businesses that do this are private equity firms. Some have acquisition strategies based on buying a number of companies that operate in similar markets, and then rolling them up into one large entity with a view to using the scale to sell at a higher multiple than they could with several smaller ones.

But it’s not only financial buyers who do this — it’s also fairly common for an individual firm to buy another business to give itself more scale, purely in order to sell at a higher price in a few years’ time.

In fact, in the UK, many of the brokers that we regularly work with estimate that around 40 per cent of businesses sold in any given year have themselves made an acquisition in the previous two years, for exactly this reason.

To gain access to new markets

Another way for a business to scale up is to take its products or services into new markets by buying a company that already operates there.

If the acquirer is located in a particular area of the country, for instance, they might buy a business that sells similar products in a neighbouring region.

Or they could acquire a firm that sells into a market that complements their original one.

A client we worked with for a long time was a manufacturer of outdoor furniture for the hospitality industry.

Buying a business that sold outdoor seating to racecourses and other leisure establishments enabled them to expand into that adjacent category.

Another example is a current client who operates in the medical devices sector.

Their only significant customer is the NHS, and to sell to them they’ve had to go through the laborious process of becoming part of a framework agreement for a particular department or range of products. Selling their existing products into other framework areas or departments would mean trying to get accredited in those frameworks, so a quicker alternative is to buy a business that already has the agreements in place.

This opens the door not only to selling the acquired company’s products, but also being able to use the framework for their own.

To gain access to new people and expertise

This is particularly common with large companies that buy small ones.

The big business gains the dynamism that made the start-up a success, which helps them to become more dynamic themselves, or they acquire access to bespoke technology that only the smaller business can provide.

While all buyers aim to grow or protect their assets, it’s also important to remember that no matter what their goals are, they want to see that you’ve worked on delivering the ten drivers of business value, something I explore further in Chapter 2 of The Exit Roadmap.

They look for strong financial performance over the last few years, and a credible scale-up plan that you’ve developed in detail.

They want to be assured that the revenue from your business will be secure, whether it be through subscriptions or a pipeline of new work.

They seek a company with a standout brand and clearly defined USPs that its customers value, a company that has a strong management team and a diverse and loyal customer base, and that isn’t overly reliant on you as the owner.

And they also need to be assured that you have enough working capital so they will not have to fund your day-to-day operations out of their own pockets, and that you’ve protected your intellectual property.

By developing an understanding of different buyer motivations you’ll be able to strategically position your business to attract your ideal buyers.

Ultimately, the more closely your business aligns with what buyers are actively seeking, the more likely you are to achieve a faster, smoother, and more profitable sale.

Chris Spratling is the founder of Chalkhill Blue Limited, a leading business coaching and consulting practice that specialises in helping business owners to scale their companies’ operations and achieve successful exits.

The Exit Roadmap, published by Rethink Press, is available now priced at €16.22