Before embarking on a sale, companies should try to visualize the kind of buyer they want. At the same time, they need to determine whether they’re capable of attracting that ideal candidate.

Seller checklists, one internal and one external, can make this process easier. Although the two lists complement each other, they offer different perspectives: One helps you focus on buyers’ qualities, the other on your own company’s. The M&A advisors at Doeren Mayhew explain.

External: Finding the right buyer

Your company should take between three and six months to assess your buyer preferences. Below are some basic considerations that belong on your external checklist:

  1. Strategic or financial buyer: Strategic buyers target companies that will enhance and expand their current product or service lines and help them to achieve cost synergies. Financial buyers typically look for businesses that they can purchase and then resell several years later at a higher price.
  2. Same-size or larger company. The size of your buyer could affect everything from its offer price, to its ability to fund future growth, to its corporate culture. Are you seeking a similar-size buyer from within your sector or a larger multi-industry buyer that wants to expand into a new industry?
  3. Location and workforce. Would you consider an offer from a company that’s located in a different geographic region? If so, the sale could result in layoffs or relocations, dramatically affecting employees and your local community.

Once you’ve determined these and other qualities you want in a buyer, list some prospects and rank them by category. None is likely to offer everything you want, but your M&A advisors can help you weigh the merits of each and suggest other potential buyers you may not have considered.

Internal: Sizing Up Your Company

As you’re making your external checklist, conduct a thorough self-evaluation. Put yourself in a prospective buyer’s shoes: What advantages does your company offer and, conversely, what qualities might raise red flags?

Among the items to evaluate on your internal checklist are:

  1. Growth potential: Does your company boast a record of consistent growth? Could a buyer add value that would enhance its financial performance? Do you pose a competitive threat to a potential buyer’s market share? Any or all of these might attract a good offer.
  2. Unique offerings: Do you have proprietary products, valuable intellectual property (such as patents and trademarks), hard-to-access markets or exclusive customers? Such qualities are becoming increasingly important for buyers.
  3. Debt: What kind of debt burden do you offer potential buyers? List all outstanding obligations and their amounts, terms and dates of payments. Do what you can to reduce what you owe because large debt loads can turn off many buyers.
  4. Personnel: Is your company adequately staffed? Or would a buyer consider you overstaffed (requiring layoffs) or understaffed (requiring new hiring)? Are management positions held by the best-qualified people who add strategic value to the business, or would a new owner need to overhaul your organization?

As you list your company’s competitive advantages, think of how you can emphasize these to prospective buyers. At the same time, try to minimize disadvantages. In some cases, this may mean waiting a year or two before entering the M&A market.

Combining the 2 Strains

Running your internal and external checklists concurrently, you can narrow down the list of potential buyers to the most appealing prospects. At the same time, your internal survey will help determine how best to attract these candidates and allow you to find and potentially eliminate flaws that could turn them away.

For example, if your top buyer candidate has a history of being debt-phobic and your internal checklist reveals you have an above-market-average debt load, you’ve located a potential deal-killing conflict. If the buyer is still your top choice, your company now has a direct incentive to improve its debt ratio before contacting the company for a potential deal.

What’s Important

It’s one thing to create a buyer wish list and another to find the ideal candidate ready and willing to acquire your company at a fair price. But internal and external checklists can help you focus on the deal process ahead and identify what’s important to you and to potential buyers. Doeren Mayhew’s M&A advisors in Michigan, Houston or Ft. Lauderdale can help you to prep your business for sale to maximize your deal terms.