Is it Best to Sell or Merge a Businesses with a Competitor?
When we think about who would WANT to buy our business, it is hard to think past a competitor. But a competitor will always under-value your business. Why?
Why a competitor will under-value your business?
It is hard to see any alternative to selling your business to a competitor. After all who else would want to buy a web design business – except someone who knows how to design websites? Or an estate agency – except someone who knows how to sell houses?
Finding a buyer is hard. You know who your competitors are. You know their names and phone numbers. Which means you know how to find your buyer. It is an easy get out. However, the buyer who will value your business highest is someone who doesn’t already have a foot-hold in your industry.
The person who will value your business at its maximum will not already trade in your industry. They will be able to grow in two directions
Learn 7 more deadly business sale sins…
The motives of your competitors
The method that a competitor will use to value your business will be a ‘return on investment’ multiplier based on your annual profit. The motive of a competitor is almost always to increase their own sales revenue. In other words, they will value your business by looking at how it has performed while you were running it.
Selling to a competitor will not deliver new products or services to their business and it will not open new markets for them. So they will not be motivated by the potential of your business to add another dimension to their existing business. You will never, NEVER receive your maximum sale value from a competitor.
A competitor will not consider the potential of your business to increase the value of their business
Who is the best buyer for your business?
The best buyer is ALWAYS one that operates in a ‘complementary’ industry. They are a business who have the same clients that you do, but they offer complementary services. In fact, they may already have clients in common with you.
For example, a security alarm maintenance company is complementary to an air-conditioning maintenance business – they both service the same commercial office buildings. An accountancy practice and a financial services firm both provide complementary services to small business owners.
Complementary buyers can cross-sell their services to your clients and to sell your services to their clients
The right location
It’s a bit like a house buyer who is desperate to move into your road and who will pay a premium price to secure the right location. But your next door neighbour who already shares your postcode does not need to pay that premium and has less incentive to move. They would simply be ‘up-sizing’.
So if you want to maximise the value of your business, think about who your complementary buyer is and start optimising your business for them.
This can take years of nurturing the ‘right’ clients and developing a niche.