Who Will Buy a Business For Sale?

If you have a business for sale, it is important to locate the right buyer before you decide to sell. Finding the right buyer can be quite an arduous task, since there are a lot of people who will make enquiries even though they don’t have the financial resources to buy a business. Call them nosey or call them curious, you want to do everything you can to make sure that the people who you deal with:

a) Have actually decided that they want to buy a business, and are just looking for the right business for sale
b) Are in a financial position to pay what you consider a reasonable price for your business.

Much of a person’s financial history is publicly available, so a little bit of homework before meeting a potential buyer should clue you into what businesses she has been previously involved in, what kind of successes she’s had, how innovative she has been in her methods etc. You should also find out whether the potential buyer has had an active history of buying and selling businesses, so that you get an idea of what kind of approach you can expect. A buyer who has experience with buying and selling businesses will know exactly what needs to be done, but is also likely to be that much more aggressive during the due diligence phase, and during negotiations.

Check the internet, check business publications and look for brochures and other publicity material about companies the potential buyer has started, bought or been involved with.

Potential Buyers for Your Business for Sale

Before advertising and putting word out that you have a business for sale, think about people closer to you who might be potential buyers.

1. Relatives
If you’ve been grooming your children in the hope that they will one day take over your business, they are naturally the first potential buyers you should consider. But it is essential that they know everything they need to about running the business. Ideally the time to hand your business over to your children is when they start coming up with newer, more effective processes and ideas than you. This can only happen if they’ve been working with you for years. They should also have earned the respect of the rest of your workforce. Even if your children are first in line to take over your business, other employees shouldn’t be left feeling that they have been overlooked.

2. Friends
‘Friends’ here refers to businesspeople you have known for some time through your business, and not your regular friends. The idea is to find someone who you respect for their business sense, even if you’ve never had a beer with them. Look through your customer and supplier lists to see if any of the names catch your eye as someone who might be interested in buying your business. Some of your customers or suppliers might well have strategic reasons for wanting to buy a business for sale.

3. Employees
If your family is not interested in taking over the business, or if you don’t think your children have earned the right to take over your business, consider selling your business to one of your key employees. These should ideally be people who have worked with you for years, and who have been with you through several crises, so that you know how capable they are of coming up with innovating ideas during times of stress. This is the most important thing you should identify in an employee who is also a potential future owner. The employee should also be familiar with the more mundane aspects of the business, like the day-to-day paperwork.

Finally, look out for an employee who has always treated the workplace with an unusual amount of respect. An employee who will worry about a tear in the carpet or a leaky tap, is likely to be one who loves her work and who pays a lot of attention to detail.

Two Kinds of Buyers for a Business for Sale

Financial Buyers
Financial buyers are people who want to invest money in a business that will be their main concern. They have money, and are trying to decide on the right business for them. A financial buyer maybe the ex-employee of a corporation, now looking to run her own business, or another business owner who just sold her previous business and is now planning her next career move.

Financial buyers like to see results when they are scrutinizing your company. They are unlikely to buy your business if they see it as a risky proposition. Your cash flow statements should tell them that your business is making money, so that all they have to worry about is taking over the reins. However there are come financial buyers who look out for underperforming companies, so even if your company is in trouble you should be able to find a buyer.

Strategic Buyers
Finding a strategic buyer for your company is often more beneficial than selling to a financial buyer. Unlike a financial buyer, whose reason for wanting to buy your company is straightforward, a strategic buyer wants to buy your company as part of a business strategy. They most likely have other concerns and are looking to expand their portfolio. A strategic buyer may also be a competing business owner who wants to stop spending money on trying to out-market you, or a supplier who realises that she can benefit immensely from your distribution system.

In all these cases, the potential buyer is not looking specifically at your company’s performance, but rather to see if your company fits in with their business strategy.

Strategic buyers are usually willing to pay more than financial buyers for a business, since to them, the benefits of owning it are not dictated only by your cash flow statements. If the business for sale is a well-performing one, the seller will definitely be able to command a higher price from a strategic buyer than a financial buyer.