You have many reasons to be proud of your business. But as we all know from having sold homes or cars, it’s not what we value that matters, it’s what the buyer values. If you plan to sell your business, either in the near or distant future, you need to start now to ensure that it has a high value for those who might be interested in buying it. That can vary from buyer to buyer.

In this episode, Gail welcomes back to the podcast financial consultant Manny Clark. Manny has many years of experience with mergers and acquisitions, joint ventures, and other forms of business buying and selling. Residing in Charlotte, North Carolina, Manny is a member of the Texas-based business law firm Winstead, PC.

In his earlier appearance on the podcast, Manny discussed many of the pitfalls that can occur when selling a business and how best to avoid them. In his conversation with Gail this time, he focused more on examining the question, Why would a buyer want to purchase your business?

Manny explained that, in general, there a two types of buyers for a business. There are those he referred to as strategic buyers and those he referred to as financial investors.

Strategic buyers are those who want your business because they want to eliminate it as competition or because they are employees who want to perpetuate the business after you’ve exited. These buyers are likely to either request an acquisition, which could be an outright purchase or a management buyout, a merger, or an aqua-hire (hiring away your team but not purchasing the entire business). Any of these could involve acquiring the business over a period of time as opposed to a one-time purchase.

Financial investors foresee that the business has the potential to grow and increase its revenue and profit into the future. They will offer to invest a certain amount of money or purchase a certain portion of stock now with an eye to increasing their share of ownership in the business over time. If the business continues to perform according to expectations, they may eventually purchase the business outright.

Manny said the two main things prospective buyers are looking for are sufficient net income and potential growth. Therefore, it’s critical on the part of the seller to begin as early as possible to build up the business in order to increase its value at the time of sale.

During their conversation, Gail and Manny touched on many other topics related to exiting and selling a business. Manny also described again the many steps involved in selling a business. To get all the details, listen to the entire podcast.

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Mentioned in This Podcast

To learn more about Manny or to contact him, go to his webpage on the Winstead PC website at www.winstead.com/People/Manny-Clark.

To see the previous podcast with Manny, which includes in the show notes Manny’s information sheet for prospective sellers, listen to the full episode here: “9 Best Practices for Maximizing Sale Value"

Manny recommended the book, The Exit-Strategy Playbook: The Definitive Guide to Selling Your Business by Adam Coffey. It is available from online booksellers.

Manny and Gail talked about the metric EBITDA, short for earnings before interest, taxes, depreciation, and amortization, often used in evaluating a business’s worth. You will find a good explanation of what it is, how it is computed and how it is used at www.investopedia.com/terms/e/ebitda.asp.

Also mentioned in their conversation was the term GAAP, which stands for Generally Accepted Accounting Principles.

One of the practices used in management buyouts is an employee stock ownership plan (ESOP).

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Episode Transcript

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Welcome back, Manny.