Rating Business Buyers in Today’s Market
Making the initial decision to sell is tough, but once that decision is made, there are many diverse options. Small businesses are more sophisticated than ever, and the individuals purchasing these businesses are complex and come from varied backgrounds. Here is an overview of the most active categories of business buyers in today’s market:
Groupings of Family Members
People within a business owner’s own family often opt to buy the family business. In fact, this stands as one of the more common types of small business buyers. One reason is that business owners are more comfortable with a relative taking over the prized business, as they often built it up from nothing. Quite often the family member looking to take over the family business has been carefully groomed and tested over the years to ensure that he or she is ready to be the true “heir apparent.” In this kind of situation, the family member truly is the best person to buy the business.
However, there is a downside. Family dynamics can be quite complex, and a variety of conflicts may develop. Issues may quickly arise ranging from whether or not the departing business founder and family member can really leave the business to whether or not the new buyer actually has the funds to make the purchase. These, and similar issues, can cause significant disruption in the transaction of the sale. In short, families come with histories and their own, and often complex, internal issues and discord can arise. This means that an outside buyer is often the best possible option.
When it comes to determining whether or not a family member is the right buyer for a given business, it is necessary to look at three vital issues: the ability of the family member, the financial standing of the family member and the agreement amongst the family.
Selling a Business to a Business Competitor
Business competitors are frequently overlooked when it comes time to sell a business. Why? Usually there is a concern that a competitor will take advantage of the knowledge that a business is up for sale and may try to attract existing customers or clients away from the selling business. Yet, if the business meets the needs of a competing company, they may be willing to strike a very good deal in order to acquire the business and expand.
When it comes to selling a business to a competitor, a business brokerage professional can prove to be quite useful. One reason for this is that they can use confidentiality agreements so that the name of the business being sold is only revealed after contacting the seller and further qualifying the competitor in question.
Selling to a Foreign Buyer
Foreigners love the idea of buying a business in the United States. There are many reasons why they find this notion to be attractive. For example, by opting for an existing business many foreigner business owners are able to bypass difficulties such as licensing, finding a job in their own profession and issues with a language barrier. Many of these types of concerns can by circumvented, to an extent, by opting for an established entity.
Commonly this kind of buyer is accustomed to working very long hours and is already a successful business owner in his or her own right. Yet, this does not mean that their business acumen will coincide with that of the seller. Once more, this is where the expertise of a company can come into play.
There is one additional note to consider when selling to a foreign buyer. Small business owners often believe that foreign companies and independent buyers will “pay big” for their business. However, the fact is that foreign companies are usually only interested in acquiring businesses or companies that already have sales in the millions.
Dealing with Synergistic Buyers
A synergistic buyer is one that believes that a given business would stand as a perfect fit for his or her own existing business. Part of the thinking is that by acquiring the new business, this buyer will be able to lower costs, gain new customers and incur other important benefits and advantages. It is interesting to note that synergistic buyers often will pay more than other buyers due to the fact that they see tangible, and perhaps even immediate, benefits for making the purchase. Similar to working with a foreign buyer, synergistic buyers rarely look at small businesses, but instead seek out mid-sized companies that meet their overall criteria.
In short, financial buyers can be quite demanding as they potentially have a long list of demands. The bottom line for these buyers is that they want maximum leverage. Yet, they also fall into the right category for a seller who wants to continue to manage his or her company after it has been sold. Financial buyers frequently play “hardball” and will make an offer that is lower than other types of offers. However, they often make non-financial provisions that could be important to the seller, such as the location of the business, the retention of key employees and a myriad of other factors.
Financial buyers are only interested in a business that is able to yield enough profits to support both the existing management and provide a return on the investment to the owner.
The Individual Buyer
The majority of sellers of small to mid-sized businesses want to deal with the individual buyer if possible. Quite frequently these buyers are mature, ranging in age between 40 and 60, and are experienced veterans of the corporate world. For these buyers, owning a business not only is a dream, but also it is something that they now can afford. Understanding what this kind of buyer wants is a key component in making the deal happen.
In general, any buyer that is looking to replace an existing job is a very good prospect. Owning a business is clearly much more involved than being someone else’s employee, and these new responsibilities and potential risks can frighten many prospects away. Yet, this category of buyer has a deep internal need or “drive,” which may help make the deal happen. Further, the individual buyer may approach the deal with fewer strings and other assorted complications than many other types of potential buyers.
One Final Thought
Sifting through the various potential buyers to find the right one can be complicated. As a result, it is best to leave this process in the hands of professionals who have the experience and know how necessary to decide on the best possible prospects.