What a Buyer May Really Be Looking At

When assessing a business to buy, a buyer usually employs a number of professionals to help them with activities, such as checking the numbers (accountants) or looking into legal issues (attorney) to name a few. Just as a buyer is scratching beneath the surface to make sure they are no hidden surprises, a seller may be equally proactive by predicting what the interested buyer would likely want to look into.

Let’s look at a couple of areas a prudent buyer will be interested to know more about:

Finance

  • Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies
  • Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies
  • Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
  • Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?

Management

  • Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis
  • Has the business experienced a lot of management turnover over the past few years?
  • If there are any employees working in the business, do they take pride in what they do and in the business itself?

Manufacturing

  • What is the inventory turnover? Does the company have too many suppliers?
  • Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?

Marketing

  • Is the business introducing new products or services?
  • Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.

The above list is not exhaustive, but it will give a business owner interested in selling their business a good idea as to which areas of business they have to make presentable and make whatever changes that are appropriate to deal with them. A buyer looking into these areas later on during due diligence will surely appreciate the owner’s effort and it.