When meeting with business owners who are thinking about selling their business, I want to let them know what serious buyers are looking for when they’re contemplating purchasing a business. With a small to medium size business where they buyers will be the owner/operator, they want to earn a living wage and get a return on their investment.
From the Discretionary Earnings of the business, the buyer will need to take a living wage, service any loan or note, make some improvements and save a little for any emergencies that might arise. The buyer also wants to get a return on his or her investment within a few years. They are not looking to spend the next 10 years trying to recoup their initial investment. And in most cases, they won’t pay a seller an exorbitant amount of money on the potential of the business. If the Discretionary Earnings are low, don’t expect a buyer to pay a lot for your business.
A serious buyer will want to understand the day to day operations of the business. They will take a close look at the role of the owner, the product or service the business provides, the employees, the equipment & inventory, financial conditions, the client base, and how the company can grow in the next five to ten years.
What I look for when qualifying a buyer is his knowledge of the industry, his background and experience in business, and his ability to fund and financially maintain the business during the transition period.
Buying a business is an investment and owning a business is one of the only investments where the owner can have control of their own success.