There are several common mistakes when considering a potential buyer for your business. These mistakes become costly when they are then used to dictate operating strategy or to determine how best to position your company for sale.
Additionally, most of what you read in the business press and what is available in the public domain is focused on larger and public companies and is not relevant in the small and mid sized business sale. Information about large, public transactions has little relevance to a typical small business transaction ($5 - $50 million revenue company). I discussed some of these misconceptions in a post last month.
Perhaps the easiest and most instructive guideline is company revenue rule of thumb. This is the most reported financial indicator of company size and will help you think more effectively about a potential sale (or acquisition) of your business.
It is most likely that the buyer of your business will be between 5 and 20 times your revenue size. If your annual sales are $2 million, the most likely buyer and where you should focus your energies, will have annual sales between $10 and $40 million.
I know, I know, there are examples of “merger of equals” where a company buys another of equal size and there are stories where an industry giant will buy a small business because they like their technology or market niche. However, experience tells me you are much more likely to sell to a buyer in his range.