Key Stages in the Business Sale Process – Stage 1 – Building a Good Business
As a Private Equity investor stated recently to us in a meeting, we know what makes a good business. From the outside it is often fairly obvious when you come across a “good business” but what are some of the key elements?
Customer Relationships – the essence of most businesses are the customers and their willingness to continue to buy. There are no short cuts here – the customers will find you out.
Competition – making money in commodity markets is difficult. Scale becomes critical. Small players on low margins are rarely attractive for an acquirer. Anything which reduces the effective competition (eg. Patents, control of supply etc) will enhance attractiveness.
Market Growth – similarly making money in static or declining markets is generally more difficult than in a growth phase. Basic economics concludes that as more people enter a market, margins will fall.
New Business Development – this can transform a good business into a great business. Think less about star salesman and more about marketing positioning and process. The world is littered with salespeople that have failed to make the transition from large company to small…and it’s generally not about the Salesperson!
None of the above can be changed in the very short term. These issues need to be addressed well in advance of a sale process.