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M&A Advisor Tip

Sell now exit later

Labor issues, pending tax changes – these are two big issues driving sellers to market right now. What if you’re feeling a sense of urgency to sell, but you’re not ready to move on?

There are all kinds of ways to structure a deal for owners who intend to stay on – consulting or employment contracts, equity positions, performance incentives. Selling (either some or all of the business) can be a great way to cash out and reduce risk.

Plus, if you maintain an equity stake in the business, you get to alleviate the pressures of ownership while taking advantage of growth opportunities using your new partner’s resources.

Market Pulse Survey - Quarter 3, 2021

Presented by IBBA & M&A Source

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M&A Feature Article

Niches are attractive because it’s much easier to be #1 or #2 in a smaller, niche market. Being number one has lots of advantages, as you typically have the best margins among your competitors, more brand recognition, first call/last look with customers, and other benefits.

Businesses with higher profit margins are generally more valuable than businesses with lower margins – even if they make the same total profit per year. Higher margins mean better cash flow and cash flow is what a buyer uses to pay debt service and fuel future growth. Low margins, on the other hand, can mean less operational wiggle room and increased risk.

Why niches add value:

Stand out: Having a niche makes it easier for your business to stand out in a large, crowded marketplace. Your marketing messages can be more targeted, and that makes them clearer, more personalized, and more memorable.

Specialist position: As a niche business, customers will see you as an expert. That expertise lends credibility to your work and helps make the decision to do business with you easier for your customers.

Shrink your competition: In a competitive market, carving out an area of niche, specialized expertise can reduce your competitive pressures. By targeting a distinct segment of the market, you help ensure that segment thinks of you first and continually chooses you, again and again.

Compete in the age of specialization: Remote work is accelerating the call to specialize. In the COVID-19 era, we saw more customers get accustomed to remote service delivery (e.g., remote banking, remote meetings, online exercise classes). Likewise, more businesses innovated and found ways to provide their services remotely.

If customers are no longer constrained by geographic area and travel time, it becomes easier for them to leave their local commodity service provider to seek out niche providers anywhere. A customer, for example, may be willing to leave their local financial advisor to work remotely with a firm that specializes in values-based investing.

Higher margins: Expertise is highly valued. For certain customers, expertise is more important than size, location, or brand name. When you provide hard-to-find services, you can charge more for them.

When it comes time to sell your business, there can be a lot of value in being a big fish in a small pond. If you own a niche, you have more than a good story to market to customers – you have a way to stand out to buyers and investors, too.

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