See! How to Attract a Buyer for Your Business?

Why would a potential buyer want to acquire your business? What would make them say yes? Have you ever thought about it? You probably have a long list of answers to those questions. At the end of the day wouldn’t it be just persuading them that your business worth what you expect from them and that they could get a high return on their investment?

I would recommend you to watch a social experiment video named “most people are sheep”.

It shows a person entering a waiting room and noticing that everyone in the room is standing when a horn has blown three times, the person who is sitting begins as well to stand when the horn is blown, for no reason at all.

The above experiment leads me to introduce you to Dr Robert Cialdini book:

Influence: The Psychology of Persuasion.

Cialdini describes people doing what they observe other people doing as “the social proof” based on the idea of security in numbers. For example, when you are visiting a new town and look for a restaurant you would probably be attracted by one with a lot of guests but be very cautious of one with few people dining.   The phenomenon is described as the science of social proof.

Per Jeff Sexton, whether we admit it or not, most of us are impressed when someone has thousands of Twitter followers, million of views on YouTube, many comments on their blog, etc.

Robert Cialdini reviewing many psychologists’ studies on persuasion, many marketers’ way of persuading consumers revealed that there are only six principles of Persuasion:

  1. Reciprocity
  2. Commitment and Consistency
  3. Social Proof
  4. Likability
  5. Authority
  6. Scarcity

We will explore the underlying factors that influence decisions and how to use them to get more positive responses when you are selling your business:

Reciprocity

People feel indebted to those who do something for them or give them a gift. Individuals who receive a free, unexpected information are more likely to listen to you. The implication is you have to go first. Due diligence is a very costly and nerve breaking process for potential buyers of your company. They want to avoid rushing into buying the business even if they are under pressure from you. Due diligence is critical. It takes time and acquirers don’t believe anything until they see it in writing. So if you prepare a brief for them and allow them to see it right at the beginning, they will be indebted to you.

The brief:

Include opportunities you didn’t pursue but would have liked to. You could by doing so, help the buyer to learn how much growth potential the business offers — from untapped markets to additional product lines to new marketing opportunities.

Provide all quantitative information that backs up your asking price.

Tell the acquirer what your plans are if you can’t sell the business.

Ask your accountant to compile all financial data in one binder. Tax returns (VAT and Corporation) will help the buyer asserts that your revenue is accurate. As small businesses are presenting their accounts with tax minimisation in mind, you should look for other income sources, and recast the profits or losses to adjust expenses and your remuneration. If you have unrecorded income, find a way to prove it in writing, undeclared revenues are a source of potential liability to the tax authorities!

Disclose any possible lawsuits that are pending, and if you have some, you should put in writing that you would guarantee to cover any uncovered potential liability matters that could come to light later.

Describe the system in place with clear policies, procedures and practices ‘manuals so that the business can run independently from you.

Demonstrate that the company does not rely heavily on one customer or supplier or key employee as they may not like the new owner style and stop their support and loyalty to the business.

The buyer will be thankful to you, to reduce his costs and will trust you in the negotiations, he would also be more inclined to pay a premium for your business.

Commitment and Consistency

People take a lot of pride in being true to their word.  Cialdini said that people want to be both consistent and genuine to their word. So, try getting the buyer to agree to the key terms with  you before involving lawyers, to save unnecessary fees. Heads of Agreements are usually said not to be legally binding, but it will make it hard for both parties to back away from the main provisions agreed in the Heads of Terms.

In combination with the five other principles, it will become increasingly difficult for the buyer to decide not to go ahead with the purchase.

Social Proof

We dealt with social proof above. People will usually follow the crowd. It is always a plus to have a long list of potential buyers you have approached and are interested. To achieve that your broker would have to target strategic buyers that have an experience related to your experience, skills and more importantly network. It will create a high level of excitement about your business, the acquirer will develop a passion for it. Passion is the only way to succeed in business!

Likability

Cialdini explained that likability is based on sharing something similar with people you like. People will naturally associate with individuals who are like them, and this applies to potential business buyers as well.

Likability may also come in the form of trust. For a purchaser, confidence is possibly the most important point, and there are several things you need to do to demonstrate your trustworthiness.

The growth potential of your business is what you will be judged on, but before you’ve even got into the details of it, you need to demonstrate to the potential buyer that you know them well. With the internet, there is no excuse for not having vital information about the people you are pitching. You have, right at the beginning of your first pitch, to demonstrate this to get a firm tick in the box. You do not have to have a full understanding of their business, but you should do your homework to understand how and why your business can be valuable to them. The above does not only shows you prepared thoroughly but also empathy for what they do.

You will get the most credibility if your team is involved. An engaged team tells a potential buyer that other people buy into your vision and your business. You cannot underestimate how much of a boost this provides to your chances of attracting a potential buyer – you have now demonstrated that your business can run without you helping them to envisage a smooth transition between you and them

Finally, you will always be grilled on your numbers so you must be sure that you understand them fully. Investors will challenge your turnover projections. Ensure you are realistic; investment is based on facts, not fiction, so don’t make big predictions with no substantial evidence to back it up.

Authority

According to Cialdini, job titles such as Dr. can infuse an air of authority into people, and as a result, this can lead the average person to accept what a person in authority is saying without question.

You do not have to be a Dr. to sell your business, but people in your industry should recognise you as an authority. If you and your key employees regularly publish on LinkedIn, for example, and your post attracts hundreds of views and comments only because people consider you as influencers authority in your field, a potential buyer would not question the business possibilities of success. We’re not talking about being in authority but about being an authority. “What do the experts think about this topic”?

Scarcity

In economic, Scarcity relates to supply and demand. The less there is of something, the more valuable it is. Per Cialdini, the more something is rare and uncommon the more people want it.

You may want to manufacture a limited amount of your product in an attempt to generate a sense of limitation to the general public. Have you ever notice the long lines for a new product? People are camping outside the store. If you create that environment of scarcity, you will create a demand for your product or service.

Or you may want to Consider the “Private Club Model” if you have:

  • Something of limited supply – almost always a service or experience – that is in high demand among affluent consumers.
  • A market of achievement-oriented “strivers” who are always attracted to the greener grass on the other side.

These principles are very powerful, but in the whole process, it is important to remain ethical if you try to manipulate your potential buyers they will very soon see right through your scam. These principles will only be useful if you are genuine in your efforts and deliver on your promise to your employees and the potential buyer.

Can your business survive without you?

Take the free mini value builder test

If you wish to build up the value of your business and would want to explore what you could do to make it sellable, please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or email him, jb@exit-planning.co.uk

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