The Competitor Myth: Why You Should Never Sell Your Business to a Competitor

It is hard not to think of a competitor as your buyer. After all, who would want to buy a web-design business other than someone who knows how to design websites. Or a printing business, other than someone who knows how to work printing machine. This is reasonable logic. It is also the commonly held belief among business owners that they will eventually sell to a competitor. Indeed, probably someone that you already know of, and who knows of you and your brand.

However, you will never achieve the best price for your business by selling to a competitor. Ever. The simple reason is that a competitor will only ever value your business by looking at the turnover and profit and making a calculation based on how long it will take them to earn back the price they pay for your business. In other words, they are valuing your business on a 'return on investment' basis. For a competitor, the purchase of your business is rarely a 'strategic' purchase.

Achieving the maximum value for your business is all about finding a buyer who is the right strategic fit for your business. In other words, a buyer who will benefit to the maximum extent by owning your business - who has the potential to make the most money from your business. Because such a buyer will be prepared to pay more for your business than any other purchaser.

This is not the easiest sale option. Indeed, the easiest sale option is to approach your competitors and offer to sell your business to them. And as a result, you should not expect the best price from them.

Selling your business for maximum value requires a professional marketing exercise to find and persuade the buyer that will gain the most from owning your business. This is not a skill set that an accountant is equipped to provide - and yet most business owners go straight to their accountant when they are ready to sell their business.

The best price for your business will be paid by a buyer who operates in a complementary business. For example a CCTV installer who buys a fire alarm business. They both service the same clients. There is opportunity for the buyer to cross-sell your services to its clients and sell its services to your clients. Thus, growing the business in two directions.

So if you are wondering who your buyer might be, concentrate on thinking laterally about industries that are complementary to yours. How can you make your business more attractive to them?

For more information and to download my book on business valuation visit: http://www.canopylaw.com

I have been a business lawyer for 10 years. During that time I have helped sell dozens of businesses. I have also seen lots of businesses fail to sell. I have used that experience to develop a new theory on why some businesses sell for mega-bucks, and why some fail to sell at all.

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