Best Practices to Lure a Large Company to Buy Your Business
Your business may be the missing puzzle piece that can make a larger company more successful.
Larger firms have the financial means to purchase small businesses, and they can add capital and other resources to get the most out of your firm. Getting the attention of a large company, however, can be challenging.
To close a sale, you need to clearly state why your business is valuable, and understand how your company fits into the larger picture. An experienced business broker can work as your trusted advisor through the entire process.
What is your value proposition?
Understand Why Your Business Is Valuable
Each of these company traits may be attractive to a potential buyer:
Your business is seen as unique in the marketplace, and customers can differentiate between your product and the competition.
Impact reports that: “the average person is exposed to upwards of 5,000 brand messages per day.” If customers know about and like your brand, they are more likely to buy your product.
You focus on a particular niche, and become the preferred business in that niche. If you operate in a niche, you can target your marketing efforts to a smaller market. You’ll know your target market and do a better job at solving their problems.
You make it easy to find, understand, and buy your products. The customer’s journey from finding your website to receiving your product is clearly stated.
This 2018 study notes that 73% of companies with “above average” customer experience maturity perform better financially than their competitors. Make the buying process easy for your customers, and they’ll keep coming back.
If your business has one or more of these traits, you will generate a track record of sales, positive cash inflows, and net profits. You can generate recurring revenue streams with a loyal following of customers.
If you can clearly state your value proposition, the next step is to find a large business that needs what you have to offer.
Find a Need
Stay in touch with your network of accountants, attorneys, and bankers. These professionals are involved with business sales, and they may know of a large business that could be a potential buyer.
Talk with industry peers. You may come across a former co-worker who works at a large company in your industry. Finally, stay on top of changes in your business. By setting up Google Alerts, you can keep an eye on relevant press releases and news articles about large firms in your industry.
Why would a large business buy your firm? You need to understand the differences between financial and strategic buyers.
The goal of a financial buyer is to earn a specific rate of return on investment (ROI) by following these steps.
- Evaluate and purchase: Find a company that generates an attractive level of earnings and cash flows.
- Manage: Operate the business and generate earnings, which are used to recover the cost of the investment. Once the entire investment cost has been recovered, the buyer will start to earn a positive return on the purchase.
- Exit opportunity: Sell the business to another firm that is interested in the track record of earnings and cash flows. An eventual sale generates the biggest return for the investor. The exit may be an initial public offering, or another private sale.
Strategic buyers have a different focus.
These buyers purchase companies in order to grow an existing revenue source, or to diversify into new products and markets.
Strategic buyers have a long-term focus, and are willing to make substantial changes to the acquired firm over time. The seller may be a competitor, a supplier, or a large customer. A strategic buyer is willing to pay a premium for a business that can help the combined firm increase profits.
Business expansion can take several forms:
- Vertical expansion: The seller’s business allows the buyer to control another step in the delivery of a product or service. If a sporting goods manufacturer buys a company that supplies leather material, the purchase is a vertical expansion strategy.
- Horizontal expansion: If you expand horizontally, you add new products, or sell products in new markets. If a sporting goods company purchases warehouses to store and market goods in a new geographic region, the expansion is horizontal.
Strategic buyers buy out their competitors to eliminate competition and to grow market share. They also purchase firms that help them to eliminate a weakness.
You’re busy running a business, so why not get help from an expert. The best way to find a large company buyer is to work with a business broker.
What a Business Broker Does
A broker works to understand the seller’s motivations, and potential obstacles to a sale. The broker is an advocate for the seller, and will guide you through the process.
Selling your business can be an emotional experience. Your broker will maintain an objective view – someone who is emotionally unattached from the business. This mindset helps the broker make better decisions on your behalf.
The broker uses metrics and online valuation tools to determine the business price. They can leverage their extensive connections to market the business, and to locate potential buyers
Your broker will vet potential buyers, maintain confidentiality, and negotiate favorable deal terms.
Find a Trusted Advisor
At Raincatcher, we focus on the seller’s needs – not our own.
We will tell the seller the hard truth, so they can make the best decision. Our objective is to educate the seller about their options. If it makes sense to work on the business, we will recommend affiliates that we partner with to help the owner maximize the value of their business.
Our team has worked with thousands of businesses, and we all have the small business entrepreneurial spirit. Work with the experts at Raincatcher, and sell your business with confidence.