Selling your business? Know your buyers

August 28, 2014

When the time comes to sell your business, it will be important for you to understand which type of buyer your prospective buyer is. They typically fall into three categories:

  1. An individual buyer typically intends to become an owner-operator. The buyer type could be a single individual, a married couple, a father-son team, brothers, etc. Regardless, the individual buyer plans to step into your shoes at closing and start running “your business.” Individual buyers rarely purchase a business with revenues greater than $10 million. In fact, many individual buyers are constrained by capital and/or skill sets which limit their purchase to businesses with revenues less than $1 million. Individual buyers are generally neither as sophisticated nor as hard negotiators as one might expect from buyers in the next two categories.
  2. Financial buyers are generally well-capitalized individuals or equity groups interested in buying a business which “comes with” a basic management structure in place. Financial buyers will consider acquisitions across a broad spectrum of industries. Financial buyers might at some point bring in some of their own managers, but after closing they expect the current team (which could include you, the seller) to remain in place. Financial buyers do not intend to work full time post-close in “your business.”
  3. Strategic buyers are generally equity groups or corporations which look at the purchase of your business as a timely solution to specific internal issues such as getting your customer list, taking over your patents, getting instant new capacity, and/or inheriting a complimentary product line, to name several. Strategic buyers could pay a premium for your business if it has components which cannot readily be developed by the strategic buyer. Conversely, if capacity is the strategic buyer’s primary objective, you can expect a discounted offer on your business as capacity is something that is often readily available elsewhere.

It is possible that a buyer can straddle two categories, but that gives you a primer on what you can expect. Your CPA, attorney and/or business broker can help you identify the expected buyer type for your business. This knowledge at the inception of the selling process is important as negotiations and values will be shaped by the category of buyer interested in your business.

Contributed by Michael Greengard, Praxis Business Brokers.

Through the Michigan Chamber’s partnership with Praxis, we can guide you through a step-by-step process of the complexities, all while maintaining complete confidentiality. To learn more about valuing and/or selling your business, please contact Michael at mgreengard@praxisbusinessbrokers.com or 616-588-4640.