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Why Business Sellers Should Think Like Business Buyers

By Generational Equity

Think Like Buyer

One of the most important aspects of the services Generational Equity provides its clients is the perspective of a business buyer and how they view privately held companies. You see, far too often business owners are so involved in the minute details of their daily operations that they are unable to fully grasp how a buyer may view their company. We help them, through our experienced evaluation team and dealmakers, to begin to see their business as buyers will.

This is important for two contrasting reasons:

  • It helps business owners understand the “risk” that some buyers may see in their businesses.
  • On the flip side, we can also help business owners see the positive “intangible assets” that many buyers may be willing to pay a premium for.

Understanding the Risk in Your Business

Both of these “buyer” perspectives are equally important. First, when selling your business, you may have no idea why the fact that you make all the key decisions for your company could be seen as risky. Known as owner dependence, this is a vital area that buyers look at when making an acquisition. “Will the operations continue once the current owner departs?” is the question behind this one.

Nor will you understand why having 80% of your revenue coming from one client might be a challenge for many buyers to overcome. We call this customer concentration and it is probably one of the most prevalent issues we tackle with our clients.

From a seller’s perspective, it shows just how great your company is at filling orders and exceeding client expectations that you are able to have a long-term relationship from one blue-chip business. But professional buyers see this issue differently: They wonder, if 80% of the revenue were to disappear the day after our acquisition, where will we recover it from?

These are just two of dozens of risk factors that we help our clients understand the importance of from a buyer’s perspective. Are they generally happy when we point these items out? Usually not. But we have a fiduciary responsibility to do so as their M&A advisors. We also suggest how to improve these areas within our Roadmap for Enhancing Value document that is provided to each client.

What about the Intangible Assets?

In addition, we also help business owners realize that oftentimes their companies hold intangible assets (a.k.a. off-balance sheet assets) that can also be seen as valuable to specific professional buyers.

Because most business owners only sell one company in their entire career, they have no way of knowing how a buyer might view items that they often take for granted as part of their daily operations. These can include many items, such as:

  • Recurring revenue streams (from more than one customer of course)
  • Experienced employee base with low turnover
  • Solid and documented systems and procedures (not locked in the owner’s head)
  • Stable and large vendor base
  • Significant market size and growth potential
  • Dedicated and skilled sales/marketing team
  • Well-trained and mentored middle-management
  • Business plan in place and updated annually
  • Proprietary software developed in-house
  • Defensible market share
  • Location, location, location (and not just for retailers)

This is just a short list of some of the intangible assets we look for when evaluating/selling a company. Do all buyers value these equally? Of course not. For some, many of these might be irrelevant. However, one or two of these could be considered as a goldmine to the buyer and worth paying a premium for.

For example, let’s say a manufacturer of a complementary product to what you produce has a tremendous plant with lots of capacity, but lacks a sales team. Your dedicated and skilled sales/marketing team might be quite attractive to that individual.

Furthermore, let’s say your plant is located on a local rail spur, allowing you to load and ship your product more efficiently (and cheaply). Many buyers might find that worth paying a premium for!

And these are just two examples of intangible assets that many business owners take for granted. But we don’t. Our deal teams are extremely skilled at knowing what specific buyers want and putting the right opportunities in front of them. This is probably why we have been awarded Investment Banking Firm of the Year two years in a row and have led the Thomson Reuters league tables year in and year out for nearly a decade:

If you want to learn more about how buyers think when they are examining acquisition opportunities, a great place to start is at a Generational Equity exit planning conference.

We hold these throughout North America, and they are designed to help business owners reach a better understanding of all aspects of exiting, but also how professional buyers operate, what they are looking for, and above all else, how they often value intangible assets.

To learn more from our professional M&A advisors, use the following links or call us at 972-232-1121:

As you move forward with your exit plans, the more you can learn how to think like a buyer, the better your chances of securing an optimal value!

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2018 Generational Equity, LLC All Rights Reserved

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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.