Common Types of Business Buyers
When you are ready to sell your business, it is important to prepare well ahead of time. You want to have all your ducks in a row so you can be sure to attract the right buyer. This means getting your financials in order, cleaning up any potential legal issues, making necessary technological upgrades, and anything else that could make it easier for prospective buyers to justify the purchase.
During the sale preparation, there is a related issue that sellers often overlook: what type of buyer are you trying to attract? This is an important question, because the specific terms and conditions of the sale, the future of your employees, and similar issues will be determined largely by who is buying your business.
To better answer this question, here is a look at five common business buyers and what each brings to the table:
Family or Friends: Selling a business to those closest to you can be a double-edged sword. On the one hand, a family member or friend may have worked in the business and have some understanding of what it takes to operate it successfully. On the other hand, loved ones do not always have the necessary financing, and they may look to you to help with that. In addition, they may also want to purchase the business at a discount.
Another potential issue is if the business does not perform well and you financed part (or all) of it, you may have more difficulty getting your money out. If you are considering dealing with family or friends, proceed with caution and ensure that they have the financing and know-how to make the deal work.
Employees or Partners: Business associates are usually stronger buying candidates than family or friends. Because they have experience working in the business and have established relationships with the employees, there is a good chance that the transition will be smooth. On the down side, these buyers often have problems obtaining the financing, and will look to you to help with that. They may also ask for a discounted price based on your relationship with them.
Investors: If an individual or investment group is purchasing a business strictly for financial reasons, it usually means they want as little day-to-day involvement with it as possible. Investors are also typically looking for a good deal, so it is not uncommon for them to hold out for a lower price. If you want to sell your business but continue working in it (or even operating it), an investment group might be a viable option. Just be sure you have a strong negotiator in your corner who understands the process and how to successfully deal with these types of buyers.
Competitors: Business owners often look at competitors as potential buyers. This can make sense in many situations. Your competition understands the market, and they are likely to see the value in your company. They may also see added synergistic value in combining the two businesses, which may provide greater motivation for them to make the deal. The one thing to be cautious of with competitors is protecting your trade secrets. During negotiations, it is essential to work with a business intermediary who understands confidentiality agreements and can ensure that important details about your business are not disclosed until the appropriate stage in the process.
Outside Individuals: Individual buyers can be great candidates, because they tend to come with less baggage than the other groups. These buyers have often owned businesses in the past, or come from the same industry and are looking to finally be their own boss. There can be some complications with foreign buyers because of the need to secure a visa, language barriers, etc. In addition, some individuals will ask you to (at least partially) finance the purchase, and you will need to decide whether or not you want to do that. On balance, however, outside individuals tend to be one of the best types of buyers to deal with.
Whatever type of buyer you have in mind, it is important to work with an experienced professional who thoroughly understands business sales and purchases. A reputable business broker can skillfully guide you through each stage of the process and help vet your candidates for you to bring you only those who are most suitable, and help bring your transaction to a successful conclusion.