Selling Your Business? Here’s What Acquiring Companies Want to See
Whether you’ve built your company from the ground up or scaled a family-owned enterprise, the decision to sell is both emotional and financial. But once you’ve made that choice, the focus shifts to the most practical of questions:
How do you position your business to attract the right buyers and maximize its value?
The best way to start is by thinking like a buyer. Acquiring companies are looking for businesses that will provide a solid return on investment with minimal headaches. By understanding what potential acquirers prioritize, you can take proactive steps to prepare your company for a smoother — and more lucrative — sale.
So, let’s talk about what would-be buyers want to see.
Clean, Transparent Financials
Among the top wants on a buyer’s checklist is financial transparency. It doesn’t matter what qualities they’re looking for in your business — if they can’t trust the numbers, they can’t properly evaluate the deal … nor can they necessarily trust any other quantifiable part of the business. Thus, the numbers you present should be accurate, well-documented and compliant with accounting standards.
Acquiring companies will likely want to see your income statements, cash flow statements, balance sheets, tax returns and general ledgers, among other things.
They will expect you to be up front about liabilities — loans, leases and other obligations. They won’t want to see any blurred lines between owners’/management’s personal finances and the business’s finances.
Profitability/Cash Flow
Some buyers will want reassurance that your company generates substantial and reliable cash flow. Among the things they’ll look at:
- Whether your bottom line is sporadic or seasonal.
- Whether your income is generated across a diverse customer base or heavily dependent on a single client (customer concentration).
- The percentage of your revenues that are recurring in nature.
If you believe cash flow will be an important attribute when you go to sell, and you believe it could be stronger, consider implementing measures before you sell, such as securing longer-term contracts with clients and tightening up collections.
Growth
They say “cash is king,” but that’s not always the case. While some acquiring businesses will be focused on your bottom line, others will care more about the top line.
Would-be buyers would then be interested in things such as total addressable market, market saturation, historical growth metrics and expectations for growth going forward.
Customers
Sometimes, businesses acquire companies simply to acquire their customers. They know what it would cost (via marketing and ads to acquire each customer, and sometimes the math dictates that buying a company’s existing base would be less costly than trying to do it the organic way.
Among the most important aspects of those customers will be the level of their engagement. Frequent users/buyers are much “stickier” than infrequent users/buyers, and thus more valuable.
Scalable Systems and Processes
While some acquisitions result in a business being folded into a larger one, sometimes companies are bought to be wholly owned subsidiaries. In this case, the acquiring business will want to know that your firm is set up to grow under new ownership — and the focus will be on scalable systems. Buyers will look closely at:
- Operational efficiency: Are there systems in place to manage daily operations without the owner’s constant oversight?
- Technology and automation: Outdated systems or manual processes may signal costly upgrades ahead.
- Documented procedures: Written policies and workflows help ensure continuity and reduce reliance on institutional knowledge.
Other Factors That Boost Buyer Confidence
Among other elements that an acquiring business may care about?
A strong brand reputation with loyal customers adds value. A brand littered with negative reviews or with no real recognition can drive that value down.
Legal and regulatory compliance matters, too. Ensure all licenses, permits and contracts are up to date. Regulatory issues can become deal-breakers.
There’s also the matter of owner independence. That is, if the company cannot function without you, buyers may be reluctant to take on the risk. Preparing your management team to run independently is key.
5 Tips for Positioning Your Business for a Smooth Sale
If you’re considering selling in the next few years, it’s never too early to prepare. Here are five quick ways to strengthen your position:
- Start early. Ideally, you should begin preparing your business for sale at least two to three years in advance. This gives you time to address weak spots and improve what needs to be improved.
- Seek professional valuations. A third-party business valuation provides a realistic view of what your business is worth and can guide your planning.
- Plan for tax implications. Work with a tax professional to minimize liabilities and maximize after-tax proceeds.
- Communicate with key employees. Keeping your leadership team aligned and motivated ensures smoother continuity post-sale.
- Build a strong advisory team. Accountants, attorneys and M&A advisors can help you anticipate buyer concerns and avoid costly mistakes.
Ready for a Smoother M&A Transition?
Mergers and acquisitions can open new doors — but only when due diligence is handled thoroughly and strategically. Whether you’re acquiring a competitor, entering a new market, or building out your offerings, a detailed M&A checklist helps you avoid surprises and build a roadmap for success.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that serves small and midsize businesses. Our experienced mergers and acquisitions team can provide you with deal support, including positioning your business for a sale, finding a buyer for your business and more.
Call us at 440.892.8900 or contact us online today to learn how we can help you navigate your next big move.
Tags: mergers and acquisitions, small business | Posted in mergers & acquisitions