Business Owner & Financial Buyer: A Tale of Divergent Risk Profiles

You founded your company with an idea.

You remember the day; you were an employee at your last job and you discovered a better way. You brought it to your boss and it fell flat. He told you, “Stop wasting your time.” Over the next several months it gnawed away at you. You went to your boss’s boss and received the same cold reception. Then you got your review and suddenly your performance was rated below average for the first time in your career. You could see the writing on the wall, so you decided to take control of the situation. You decided to start your own company. You crossed the chasm from worker to founder. You chose to leave behind the wage earner (employee) life for the wage payer (employer) life. You, by definition, are a risk taker and you are different from most people.

Where others see downside, risk, and pitfalls, you see opportunity. 

You see a future the rest of us simply cannot see.

The World Rewarded Your Hard Work and Vision

Years, perhaps decades, removed from the founding of your business we all see the genius of what you’ve accomplished. You’ve attracted customers, employees, and vendors and you’ve made your mark on the marketplace.

You’ve accomplished everything you set out to do; probably more.

Now you’re ready to exit the business you’ve built from the ground up, the one you’ve been engrossed in 24/7/365 for as long as you can remember. You’re ready to create a new identity. 

After reviewing your options, you’ve determined the best decision is to run a formal sale process to fetch the best offer for your company. Under this scenario, for a variety of reasons more than ever before, your most likely buyer will be a “financial buyer”.

Who are Financial Buyers?

Financial buyers come in many varieties, including private equity funds, independent sponsors, family offices, and private investors, among other categories. Financial buyers seek high financial returns first and foremost above other considerations. This group is distinct from the traditional “strategic buyer”, who often has a broader range of strategic considerations for pursuing a particular corporate acquisition.

Side note: in certain cases, these two previously distinct groups are melding with the emergence of the “private equity-backed strategic buyer”, but the distinction still remains useful.

Financial buyers specialize in evaluating private businesses, like yours, as investments and completing these types of transactions. They probably were at the top of their class from an elite college, have spent their career in the finance industry, and most likely never founded or ran a company. In summary, they are not you, and they don’t think like you think.

How Do Financial Buyers Think?

Financial buyers for mature businesses (I’m not talking about venture capitalists here) are risk investigators. The question they are always asking themselves is: “Why is this business for sale now?” They trace every potential risk, obsessively, until they get comfortable with it.

As the owner, this process will feel extremely tedious. You may even feel insulted by certain lines of questioning. You will need to always remind yourself that these financial buyers are not you and they have not lived and breathed your company for the tens of thousands of hours you have. They don’t know your people, your culture, or your integrity, they see data.

They need to go through this process before convincing their investment committee and other investment partners to write you a big check.

Given the way financial buyers think, a big way to reduce your risk of having a hiccup during your sale process is to be prepared for their questions, especially during key process moments like management presentations, as well as business & financial due diligence.

If you’re like most entrepreneurs, you might find yourself struggling to effectively communicate your story, and therefore, your true value to financial buyers.

Even worse, you could communicate the exactly wrong message, never even giving yourself and your legacy the shot it truly deserves.

This is a great opportunity to consider bringing a partner alongside you to walk with you through the process and look out for your interests. For every company, and depending on the moment in time, the answer will differ. This may be the time to consider bringing on a Chief Transaction Officer, like those at Doescher Group to help you bridge the gap between the true value you know your company offers, and the rigid formulas and measurements of the private equity world.

If it’s not time to hang the “for sale” sign, it may be time to audit your current operation and think like financial buyers think, so you can intentionally align your business practices with your long term goal of exiting 3, 5 or even 10 years down the road.

If you own a business, and would prefer to take charge rather than react, consider an Exit Audit from Doescher Group to determine your state of readiness for whatever the future brings.