Your Buyer Has to Make Money Too
When business owners start thinking about selling, it's natural to focus on what they want to receive for the company they've built.
For many owners, the business represents decades of hard work, risk, sacrifice, and reinvestment.
That matters.
But a buyer has to look at the transaction from a different perspective.
They're asking a simple question:
If I pay this price, does the investment still make sense for me?
The Purchase Price Is Only the Beginning
A buyer doesn't simply write a check for the business and start collecting the profits.
Depending on the transaction, the buyer may need to:
* Make payments on acquisition debt * Hire or replace management * Invest in equipment or technology * Fund working capital * Make improvements to the business * Maintain enough cash flow to handle unexpected expenses
After all of those obligations, the buyer still needs to earn an appropriate return on the money they've invested.
That's why a business can't be valued solely on what the owner wants or needs to receive from a sale.
The economics have to work for the buyer too.
Buyers Look at the Business Differently
A seller may think:
"I've spent 25 years building this company. It should be worth $5 million."
A buyer isn't questioning the effort that went into building it.
They're asking what the business can reasonably generate going forward and what return they can earn at the proposed purchase price.
Those are two very different perspectives.
This is also why financing can play such an important role in business valuation.
If the cash flow of the business can't comfortably support the acquisition debt while still providing an appropriate return to the buyer, the purchase price may be difficult to justify.
Price and Deal Structure Work Together
Purchase price isn't the only lever in a transaction.
Seller financing, earn-outs, rollover equity, and other forms of deal structure can sometimes help bridge a gap between what a seller wants and what a buyer can justify.
The right structure depends on the business, the buyer, and the circumstances of the transaction.
But the underlying principle doesn't change.
A good deal has to work for both sides.
The seller should be rewarded for the business they built.
And the buyer needs an opportunity to succeed with the business they're buying.
Understanding both sides of that equation can make the difference between simply putting a business on the market and actually getting a transaction closed.