Before a small business begins the process of looking for a buyer for their business; they must first understand why they want to sell the business. I typically hear retirement for the main reason but I also see partner disputes, estate planning, burn out, and to many other interests. Whatever the reason a small business seller must commit to a process once that decision to sell is made.
I don’t want to discuss the process of selling a business but rather discuss the types of potential business buyers that are really feeding the small local markets. These buyers have access to more information and are becoming more sophisticated in their approach to buying a business.
Below are some examples of the categories of potential business buyers:
1. Retirees – There are over ten thousand individuals retiring every day in the United States. Many of the retirees want to remain active and/or do not have the financial security to retire. They have tremendous wisdom and knowledge and are quick at understanding a business with which they have an interest.
2. Business Competitors – As a small business owner, the thought of selling your business to a competitor with which you have competed with over the years is a difficult possibility to accept. However this group is typically y over looked, but may be the best possibility as expansion for them is always an option. They have the business knowledge and skills and most likely have the resources to acquire your business. The tricky part is to make sure that competitor is serious before disclosing confidential information. There are also synergistic buyers that may not be competitors but could benefit from the products and service your business may offer.
3. Family – Business owners will usually look at family members as a potential source of buyers. This may be done very early on for estate planning or later in the business life cycle as different family members express interest in working for the business. Also, extended family should be considered as a potential source. The issue with family members is that they may lack the capital to pay for the business and the conflicts that may arise for ongoing support. That separation of business and family may be difficult.
4. Key Employees – Your business is only as good as your staff and key employees. I see on many occasions key members of management may be the only option as if the business is sold to an external buyer, the key employees may not stay, making that sale difficult. Establishing clear line of communication with these group will create a better transition and potential exit strategy.
5. Money Buyers – These buyers are typically looking to buy a business strictly on some multiple of net cash flow of your business. They are the most demanding, most sophisticated and are hard negotiators. Some are looking to buy a job but most are looking for a return on their investment. For this group having accurate financial records is extremely important.
It is not easy to find the right buyer for your business to create a win/win scenario. It is self-serving but I highly recommend using n experienced business broker. In the Emerald Coast of Florida, my company, South Walton Business Brokers is the leader for connecting business buyers and sellers.