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. Usually I hear that retirement is the main reason, but I also see partner disputes, estate planning, burnout, and many other interests. Whatever the reason, the small business salesperson must commit to a process once the decision to sell is made.
I don’t want to talk about the process of selling a business, but about the types of potential business buyers that are actually feeding small local markets. These buyers have access to more information and are becoming more sophisticated in their approach to buying a business.
Here are some examples of the categories of potential business buyers:
1. Retirees: There are more than 10,000 people who retire 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 to understand a business they are interested in.
2. Business Competitors – As a small business owner, the idea of selling your business to a competitor with whom you have competed over the years is a difficult possibility to accept. However, this group is generally overlooked, but it 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 making sure the competition is serious before revealing confidential information. There are also synergistic buyers who may not be competitors but who could benefit from the products and services that your business can offer.
3. Family – Business owners will generally view family members as a potential source of buyers. This can be done very early for estate planning or later in the business life cycle as different family members express interest in working for the business. In addition, the extended family should be considered as a potential source. The problem with family members is that they may lack the capital to pay for the business and the conflicts that can arise from continued support. That separation from business and family can be difficult.
4. Key Employees – Your business is only as good as your key employees and staff. I see that on many occasions key members of management may be the only option, as if the company is sold to an outside buyer, key employees may not stay, making the sale difficult. Establishing a clear line of communication with this group will create a better transition and possible exit strategy.
5. Money buyers: These buyers generally seek to buy a business strictly with a multiple of the net cash flow of their business. They are the most demanding, the most sophisticated and the toughest 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.
Finding the right buyer for your business to create a win-win scenario is not easy. It is self service, but I highly recommend using an experienced trading broker. On the Emerald Coast of Florida, my company, South Walton Business Brokers, is a leader in connecting business buyers and sellers.