What is meant by barriers to entry into a market?
Barriers to entry is the term given to the existence of obstacles preventing new competitors from easily entering a market. Such obstacles might include high start-up costs, difficulty associated with establishing a new brand in a market, regulation enforced by government bodies, patents associated with technology needed to launch a new company or simply the size and scale needed to operate profitably in a market.
Why is it important for transaction purposes to understand the barriers to entry in your market?
A potential buyer will want to understand the advantage they would be gaining in a new market by buying your company, as opposed to the option of setting themselves up as a competitor to your business. By understanding the barriers to entry – and if possible quantifying these – you will be better placed to articulate the value to prospective buyers of purchasing your business.