What Could Be As Important as the Financials?

What Could Be As Important as the Financials?

Posted on September 11, 2018
The way to answer that question is a challenge to the person asking it.  “When evaluating new suppliers, do you always standardize on the one with the least expensive product or service?”  Follow up with, “Why not?  What could be as important as the price?”  In more than 80% of B2B sales the lowest price doesn’t win the bid.  It’s because the bottom line number, although important, is not the only consideration.  
 
Likewise, prospective business buyers evaluate business opportunities the same way.  It’s rare to find a business with near-perfect customer concentrations, high-profit margins, consistent growth, self-managed and independent of the principal’s attention that’s not priced at a premium.  Businesses possessing each and all of those characteristics transfer to the new owner at a premium to businesses that are borderline in all those qualities. 
 
Each buyer evaluates each business on it’s own merit.  Some buyers want a business in perfect shape and acquire it poised to immediately implement an aggressive growth strategy.  Other buyers look for value-added businesses they are confident they can turn around or bring to the next level over a longer horizon.  Buyers with sales and sales management experience are less intimidated by stagnant growth businesses.  Buyers having access to capital aren’t scared of struggling businesses with good infrastructure.  Buyers with strong personnel management skills look closer at businesses dependent on hands-on managed companies than buyers not confident of their management abilities.    
 
Buyers expecting to find a perfect business look for a long time and are either ready to pay a premium or throw in the towel.  Buyers with reasonable expectations frequently go through the evaluation process of multiple businesses.  Before long, they realize their own needs and start looking for a business that is perfect for themselves.  Unfortunately, it can take a buyer a while to determine exactly what their own needs are.  So, sellers have to take each buyer seriously.  
 
So, to answer the question, everything is important when evaluating a business.  Almost no business is perfect and all factors come under discretionary consideration.  It would help to read Most Desired Characteristics in the Business Marketplace on the IEB website blog.  
 
Financing institutions frequently follow-up with their newly financed business owners to survey what made them choose the business they acquired over other businesses.  Factors cover the spectrum and are too varied to detail, however, one surprising factor is common:  The buyer cites the connection and tempo of the initial buyer/seller meeting was so favorable that a momentum started and kept going.  That supports the adage that trust is still everything.
 
In the end, EVERYTHING is important when a business is being evaluated.  It is the entire opportunity as a whole that fuels the deal to a close.  

Tom Stayanoff is a Senior Broker with Indiana Equity Brokers and specializes in serving small and medium-sized businesses in Northern Indiana.