Once a business owner has made the decision to sell, he or she should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying businesses have also become more divergent and complex. The following are some of today’s most active categories of business buyers:
Members of the seller’s own family form a traditional category of business buyer – a category of buyers that is “tried” but not always “true.” There is something appealing about a family member taking over the business. There is a sense of keeping the business in the family and an assumption that such an arrangement will translate into the prime advantage of continuity. Continuity may in fact be the result as long as the family member buying the business treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the “heir to the throne.” If this has been done, the family member may be the best type of buyer.
Too often, however, the difficulty with the family member as buyer lies in the conflicts that may develop. For example, does the family member have sufficient cash to purchase the business? Can the selling family member really leave the business? In too many cases, these and other conflicts result in serious disruption to the business itself and/or to the sales transaction, not to mention the impact on family relationships. An outside buyer eliminates these often insoluble problems.
When considering a family member as a buyer, a business owner should carefully evaluate three factors: ability, family agreement, and financial worthiness.
This is a category often overlooked as a source of prospective purchasers. The obvious concern is that competitors will take advantage of the knowledge that the business is for sale by attempting to lure away customers or clients. However, if the business is compatible, a competitor may be willing to “pay the price” to acquire a ready-made means to expand. A business brokerage professional can be of tremendous assistance in dealing with the competitor. They will use confidentiality agreements and will reveal the name of the business only after contacting the seller and qualifying the competitor.
The Foreign Buyer
Many foreigners arrive in the United States with ample funds and a great desire to share in the American Dream. Many also have difficulty obtaining jobs in their previous professions, because of language barriers, licensing, and specific experience. As owners of their own businesses, at least some of these problems can be short-circuited.
These buyers work hard and long and usually are very successful small business owners. However, their business acumen does not necessarily coincide with that of the seller (as would be the case with any inexperienced owner). Again, a business broker professional knows best how to approach these potential problems.
These are buyers who feel that a particular business would compliment their business and that combining the two would result in lower costs, new customers, and other advantages. Synergistic buyers are more likely to pay more than other types of buyers, because they can see the results of the purchase. Synergistic buyers seldom look at the small business, but they may find many mid-sized companies that meet their requirements.
This category of buyer comes with perhaps the longest list of criteria and demands. These buyers want maximum leverage, but they also are the right category for the seller who wants to continue to manage his company after it is sold. Most financial buyers offer a lower purchase price than other types, but they do often make provision for what may be important to the seller other than the money—such as selection of key employees, location, and other issues.
For a business to be of interest to a financial buyer, the profits must be sufficient not only to support existing management, but also to provide a return to the owner.
When it comes time to sell, most owners of the small to mid-sized business gravitate toward this category of buyer. Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace. Owning a business is a dream of theirs, and one many of them can well afford. The key to approaching this kind of buyer is to find out what it is they are really looking for.
The buyer who needs to replace a job can be an excellent prospect. Although owning a business is more than just a job, and the risks involved can frighten this kind of buyer, the buyer without a current job will have the “hunger” necessary to take the leap. A further advantage is that this category of buyer comes with fewer complications than many of the other types.
A Final Note
A business intermediary has the experience needed to sort out the “right” type of buyer.