When potential buyers are evaluating acquisitions, they are usually looking for a company that can provide sustained profits and growth. They need to make sure there is no substitute because if there is, then buying the company would just be used to cut costs instead of creating value. To do so, they want to buy something that others cannot easily replicate - one that has features or exclusivity that others do not possess.

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Buyers consider a company’s earnings, growth, how risky it may be and  leverage before acquiring it. These metrics help with anticipating what will happen post-acquisition.

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Earnings

Profitability and value are interrelated. If a company has low-profit margins, it provides an opportunity for potential buyers to buy the company at a low price and invest in building up its success. Low-profit margin companies make good acquisition targets because they can provide new opportunities for markets already established by competitors with higher profit margins. But before buying such a company, buyers must determine if the business has enough of an adequate growth rate or some unique asset that would set it apart from its competitors.

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High-profit margins relative to industry peers mean that the company is successful, and interested buyers should consider looking at acquiring it. Buying a profitable company means that it will be less risky for both parties involved because they know what they're getting into, which increases their likelihood of success. Further, high profitability shows potential in what can be done with an investor's money; not only does it come back faster, but it brings new ideas to fruition quicker as well.

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Growth

A company with high sales growth can mean it offers something of value to its customers. Sales growth paired with a structured, repeatable process can lead to profits for sellers because it signals potential buyers are interested in what the company is selling.

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Before buying a company,  buyers will examine its past 3-5 years of sales and revenue data. This information helps to determine how well the company does over time. It also shows what kind of management style they have, which can predict future success for the business. Buyers want companies that show a high rate of sales growth and are willing to pay higher prices for them. Thus, fast-growth companies attract more attention from potential buyers.

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On the other hand, low-growth companies are also easy pickings for acquisitions. Buyers have an interest in these companies if they're affordable and will improve sales with some investment from them. It doesn't take much to turn a low-growth company around, either - just enough money to invest back into it can go a long way for both parties involved. However, no matter what, buyers carefully consider whether or not such companies are potentially profitable business models that are compatible with them. They also check the likelihood of fixing the weak points and making the best use of hidden synergies.

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Risk

What risks threaten the company's future success? What company-specific risks will buyers face if they buy this business?

Buyers examine some factors which are within management control, such as over-dependes of key employees, customer concentration problems, or products becoming outdated.

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Over-dependence on key employees

Buyers want to know about the people who are integral to the success of your company. They will look at whether or not there are competent leaders for when you exit and if the company would stay afloat without you being there. They will want to see your succession plan and understand what your HR department is doing to hire, train, and retain talent. How will you make sure the key employees won't leave when they hear about your exit from the company?

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Customer concentration

The buyers want to know how diverse your customer base is. Concentrated groups of customers create weaknesses that can cause problems for buyers. They want systems that generate new business and, preferably, multi-year customer contracts that ensure repeat clients.

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Outdated products

If the company’s product becomes obsolete and ineffective - it can no longer remain profitable. Particularly when we are talking about tech-related products or services, customers will take into account which one may be more susceptible to obsolescence; they want to know what kind of innovation efforts and expenses you have taken so far. Do you have the right people, processes, and systems in place for combating this risk?

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Leverage

The company needs to have proficient staff members and managers. The owners of the company need to show that they havelet go of some of their control and taken care of every possible detail so that when they're gone, the business can still run smoothly without them. However, to do that, you need to ask yourself the following questions:

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• What combination of critical factors ensures successful outcomes for your decisions?
• Can you determine the range of outcomes resulting from your decisions?
• Have you mastered the strategy to achieve success?
• Which metrics should you meet to achieve success?
• What is the probability of each outcome?

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Buyers want to know whether you have used appropriate decision-making tools, such as case-based decision analysis, qualitative scenario analysis, or even information markets. Which tools do you feel most comfortable using when you make different decisions?

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Owners must create general protocols for decision-making in their companies before they face inevitable behavioral and political pitfalls. When using proven decision-making tools, even when what needs to happen next seems clear-cut - it will identify any hidden biases. Therefore managers and employees should know how and when to make decisions.

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Buyers also want to see how much of an advantage you can give them once they purchase your company. They also want to make sure that if anything were to happen and they have trouble with the company, it would be easy for them to deal with.

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Conclusion

Now that we know what matters to potential buyers, the only question left is; whether or not the company's current state is due to luck; or worse - directly tied to whatever this present owner does all alone. A strategic plan that takes the critical factors of earnings, growth, risk, and leverage into account shows intent. It means that operations are maximized to optimize those four factors. Since strategic plans usually cover a three to five-year time frame, annual plans will probably do the same.

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A company that has its eyes set on the right target and also works diligently to work towards those goals needs organizational structures and methods to reinforce this system. That’s hard to assess from data collected over a short period, but in the end, it’s what an acquiring business is buying when they purchase a new asset. A solid strategic plan might indicate how well things are running internally.

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To sum up, the strategic plan should outline how the organization will succeed going forward. It documents how the organization will sustain future earnings and growth, where risks lie, and how management expects to overcome risks. A strategic plan provides an overview of what potential buyers can expect when it comes time for them to take over running things. Mapping out all possible dangers and opportunities ahead of them to know the necessary steps to take to maintain this level of success moving forward.

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