Dennis Hansmann No Comments

Serious buyers want to look at the financials of a company with forethought as well as all the other considerable aspects of the Business. Nonetheless, there are some other areas that the serious buyer will heavily consider that sellers may pay no attention to.

The Industry – The serious buyer will want to take a significant look at the industry itself, the competition, the suppliers, the patronage, etc. This research will cover the strengths, weaknesses, threats from the opposition, and opportunities of the possible acquisition. With the expansion of the “big box” retailers, much power has shifted from the manufacturer to the retailer. A manufacturer may want to raise prices, but if big retailers say no, it’s a very strong no that has a large impact on others.

Discretionary Costs – Some sellers will cut down their expenses in nonobligatory areas with a goal of freeing up funds that can be used for other purposes. Some of these purposes include reinvestment in the company, paying down debt, or repurchasing shares of stock. However, these cuts will hinder the future bottom line, and smart buyers will take recognition of this.

Obsolete Inventory – This is also an area that buyers take a serious look at and that can cause a change to the purchase price. You can reduce the amount of obsolete inventory by selling it at a discounted price or giving it away for free. Another option is donating the obsolete inventory to charity so that it will be put to good use instead of taking up space in your store or being thrown out because no one wanted it. The best way to know if your inventory might go obsolete soon is by keeping up with trends and changes in.

Wages and Salaries – A company may be paying minimum wages or offering little to no benefits. These cost-saving decisions may seem like a good idea at the time but could cause detrimental issues in the future. Some of these issues include employee turnover or quiet quitting. If the target company is to be consumed by another, compensation issues could be critical to making the business a success.

Capital Expenditures – The no-nonsense buyer will take a very close look at machinery and equipment to make sure they are functioning, up to date and as good or in better condition than the competitors. Buying new equipment can modify projections and could have an affect on the offering price. Although it seems like a large expense in the moment it can have an even greater impact in the long run.

Cash Flow – Serious buyers will diligently review the cash flow statements and what affects them. The buyer wants to be sure that the business will continue to bring in a positive cash flow after the acquisition (i.e.: after paying off the debt and after paying a reasonable salary to the owner or general manager, as well as other employees).

Other areas that sellers overlook, but that the serious buyer does not include: internal controls/systems, financial agreements with lenders, governmental controls, anti-trust issues, legal matters and environmental concerns.

Please feel free to contact American Business Acquisitions for a free consultation on selling a business in Illinois or Indiana.

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