7.PROCUCT/SALES PIPELINE – Smaller companies often are more agile and have better R&D efficiency than their high overhead big brothers. In technology, time to market is critical and big companies evaluate build versus buy question. Small companies that develop new technology are faced with decision of developing distribution internally or selling to a larger company with developed channels. A win/win scenario is to sell out at a price, in cash and stock at closing, that rewards smaller company for what they have today, plus an earn out component tied to product revenues with new company.

8.PRODUCT DIVERSITY – A smaller company that has a quality portfolio of products but may lack distribution can become a valuable asset in hands of strategic buyer. A narrow product set, however, increases risk and drives down value.

9.INDUSTRY EXPERTISE AND EXPOSURE – Encourage your staff to publish articles and to speak at industry events. Encourage local and industry reporters to use you as voice of authority for industry issues. Your company is viewed in a more positive light, gets more business referrals, and an industry buyer will remember you favorably as an acquisition candidate.

10.WRITTEN GROWTH PLAN –Capture opportunities available to your company in a two to five page written growth plan. What additional markets could we pursue? What additional products could we deliver to our same customers? What segments of our current market offer most growth potential? Where are best margins in our customer base and product set? Can we expand in those areas? Can we repurpose our products for different markets? Can we license our intellectual property? What about strategic alliances or cross marketing agreements? Documenting these opportunities can add to purchase price.

When it comes to unlocking market value of your privately held company, it is not limited to bottom line. Profitability is hugely important, but factors above can result in significant premiums over traditional valuation approaches. When you sell Microsoft stock, there is no room for interpretation about market price. The market for privately held businesses is imprecise and illiquid. There is plenty of room for interpretation and result for best interpretation by marketplace is a big pay off when you decide to sell.

5.Network Network Network. A great way to improve your chances of successfully purchasing a business at a good price is to have an entree into a business that is not formally for sale. What I mean when I say that business is not formally for sale is that owner has decided that he wants to exit and has shared that information with a few close advisors, but has not engaged services of an M&A firm or advertised on one of popular Business for Sale Web Sites. Put word out to your network of professionals, industry sources, trade associations, vendors and suppliers, etc. Utilize same preparation as described above and hand out your materials. Your banker, your lawyer, your financial planner and all of their associates are great sources of businesses for sale. Remember, if you do not establish your credibility with them in your preparation, they will not risk their credibility with another client through an ill-advised introduction. The good news from this approach is that you may be able to purchase a good business at a bidder of one price without price pressure from other buyers. If that seller’s trusted advisor brings you in, chances of this happening improve significantly.

6.How serious are you? Lots of individual buyers will pay a broker or intermediary a success fee based on a percentage of purchase price. The most serious buyers, however, pay buy side engagement fees as well. This is a fee usually ranging from $2,000 to $7,500 per month paid to M&A professional to formally search for you outside of networking only approach they would take for no engagement fees. Corporations in acquisition mode almost always operate this way. The benefit to this approach is that intermediary will expand universe of candidates to those companies that fit your buying criteria that are not for sale. It is a lot of work to compile databases and try to break through difficult barriers to reach an owner that was not contemplating a sale and convincing him to entertain this process. Our objective is to buy his company as only competitor. If we can do that, transaction price will generally be 20% below a business that is formally for sale, represented by a professional, and getting many interested buyers. Saving you $1 Million on purchase of a $5 Million business certainly will justify any monthly fees and success fees an M&A professional would charge. The corollary to this is if you are a business seller, and you do not engage a professional, you most likely will leave that 20% premium on table.

Most individual buyers are engaged in buying process with either no current income or very limited consulting income. In other words, buying a business is their full time job. While one operates in buying mode, they are working for no income. The longer that buying process takes, greater erosion of their financial resources. It is in buyer’s interest to not only purchase right business at right price, but to compress amount of time it takes to complete process. Implementing one or several of these recommendations should help you buy smarter and faster.