Some of the obvious things that serious buyers look at are the financials and other major aspects of the company. In this article we will look at some other areas that serious buyers will look into that sellers may overlook.
The Industry
Serious buyers will want to take a look at the industry itself. This includes the customers, the suppliers, the competition, etc. The industry investigation will cover the strengths, weaknesses, threats from competition, and opportunities of the potential acquisition.
Discretionary Costs
Certain sellers will reduce their expenses in discretionary areas. This includes advertising, public relations, and research and development. This makes for a higher bottom line. However, these cuts will hurt the future bottom line, and smart buyers will take notice of this.
Obsolete Inventory
Obsolete inventory is another area that buyers take a serious look at. This can impact the purchase price. No buyer wants to pay for inventory that is unusable, antiquated or unsalable.
Wages and Salaries
A company may be paying minimum wages, or offering few or low-cost benefits. These cost-saving devices will make the bottom line look good, but employee turnover may create expensive problems in the future. If the target company is to be absorbed by another, compensation issues could be critical.
Capital Expenditures
Serious buyers will take a very close look at machinery and equipment. They will make sure they are up to date and on par with, or superior to, that of the competition. Replacing outdated equipment can modify projections and may affect an offering price.
Cash Flow
A serious buyer will take a long look at the cash flow statements and the areas that affect them. The buyer wants to know that the business will continue to generate positive cash flow after the acquisition.
Some other areas that a serious buyer does not overlook are internal controls/systems, financial agreements with lenders, governmental controls, legal matters and environmental concerns. The team at EBIT Associates can help guide you through the selling process. Download our FREE Sellers Guide.