Understanding your exit marketplace and your buyer is a key part of preparing your business for sale.
The Significance of Your Exit Marketplace
People often think of the goods and/or services their business offers as determining which market they are in, which is logical and fair—until the prospect of selling your business brings into focus a different market that caters to the buying and selling of businesses.
Like most markets, this exit marketplace is segmented by categories, locations, methods, and marketplaces where transactions occur.
Unlike most markets for products and services, there isn’t always a clear marketplace where you can go to sell your business.
The Invisible Markets Around Us
Everyone participates in numerous markets every day, whether we are consciously aware of it or not.
We hardly give them a thought unless they involve our business operations or impact us in some significant way, such as when preparing for selling your business.
Active and Passive Market Participation
Our participation is either passive or active.
For example, as we go about our daily lives living in a house or unit etc, we may be passive participants in the property market. Alternatively, we may be active in that market when buying, selling or leasing a property or preparing to do so.
As consumers and investors, we engage actively and passively in various markets based on our activities and investments.
The same applies to businesses, which may not actively participate in the business sale marketplace until the owner decides it's time to sell.
Understanding Your Business's Market Position
From the moment a business is formed, it becomes a part of the market.
However, businesses often remain passive in the business sale market until something prompts their participation, such as an offer to buy or merge.
Navigating Market Dynamics: Who's Buying?
As a business operator, staying informed about the macro and micro-level conditions of the market for your goods and services is part of what has made your business successful.
This same level of insight is vital when preparing your business for sale, allowing you to take advantage of opportunities or to navigate through challenges effectively.
So this becomes an area where you will need to make a concerted effort to keep your finger on the pulse.
- How prepared do you need to be to participate effectively in the Australian business market?
- How does that compare to your preparedness for the markets that your business operates in?
Essential Questions for Potential Sellers
Questions abound for anyone considering selling a business. Here are a few to consider:
- What do I need to do differently and what do I have to learn or be aware of?
- What is the state or health of the overall market?
- What market is my business in?
- What is the state of the market segment that my business is in?
- How many participants are there in my business’s marketplace – i.e. the number of buyers (opportunities) and sellers (competitors)?
- Are you aware of the caliber of buyers and sellers in your market?
- What prices are being paid for businesses like mine?
- Which businesses sell and which ones don’t?
- Where do I get advice or help from?
- Will the advice or help be objective or influenced by certain interests?
“The aim of marketing is to know and understand the customer so well, the product or service fits him and sells itself.” Peter Drucker
This quote is as true for your products and services as it is for your business exit and understanding your exit marketplace. Are you ready to embrace this for your business sale?
The Current State of the Australian Business Market
The Australian business market consists of approximately 2.6M businesses (based on the 30 June 2023 ABS report ‘Count of Australian Businesses’). New businesses are starting up (or opening) every day, while others are closing or exiting the market.
For the 2023 fiscal year, 406,365 businesses were started or opened and there were 386,392 closures – resulting in a net increase of 19,973 businesses during the year.
While the motivations and reasons for starting a business may be clear, the reasons for closures are less clear. Understandably they could include:
- Failures – it is common knowledge that long term survival rates are low
- Closures to avoid an impending and costly failure
- Other causes, such as death, divorce, dissolution and ill health etc
- Entity wind ups once assets have been sold, making the viability of the business unsustainable
While the number of businesses within the market are tracked, there is no statistical tracking of buyers in the market.
Understanding where your potential buyer comes from (whether inside or outside of your market) and what they are seeking, helps you prepare your business.
Gaining a feel for the pulse of your market, segment and marketplaces takes focus, time and consistent effort.
Preparing for a Successful Exit
Rather than stepping blindly into a new and complex domain, it pays to prepare and plan adequately, especially considering how important your exit is.
Preparing your business for sale involves improving its operations and understanding marketplace dynamics to ensure a successful and profitable exit.
"Change before you have to." Jack Welsh
If you had to sell your business next year, what would you wish you had done differently starting today?