describe the imageOwners who have decided to sell their businesses to outsiders often wonder what types of buyers may be out in the marketplace. There are several different types of buyers, but your business may not be appealing to all of them. Let’s look at two of the most common types:

Strategic Buyers

This term is used to refer to any buyer who could purchase your business and realize synergies immediately. By synergies, we mean the old “1 plus 1 equals 3” formula. By combining the buyer’s current operation with yours, he or she will be able to cut costs and/or dramatically improve sales, both of which will result in higher profits and increased value. Overhead cost savings is the most common synergy realized, and this may be generated by combining finance, human resources, sales, and/or marketing departments. Another common synergy is reduced product costs, and this is most often achieved when two companies in the same supply chain come together. Strategic buyers can afford to pay the MOST for your business due to the synergies realized.

Financial Buyers

These buyers invest in your business to get a return on their money. Some financial buyers will want to buy 100 percent of your business, but others will buy a controlling share and allow you to maintain some ownership as well so you may get the proverbial second bite of the apple when the business is sold again in the future. Financial buyers are not able to realize synergies, and they most often need your management, employees, and overhead structure in order to run the business. They may even want you to stay on for a period of time, even if you no longer own any percentage of your business. They will not pay as much as a strategic buyer for your business, but if you can demonstrate that your business is capable of significant future growth with the right level of capital investment, they will pay you a solid price upfront. Due to the amount of variables involved in growing and selling the business again, sellers who maintain some ownership should not count on a second payout but view it more as a bonus if it happens.

We always recommend that sellers hire an intermediary to help them sell their business. Your intermediary will qualify all prospective buyers to be sure they have the capital needed to complete the transaction and they are the right fit for your goals, both financial and non-financial.

There are many factors to consider when you select the optimal buyer for your business, and you need to allow ample time for the selling process to play out. You also need to do all that you can to prepare your business and make it attractive to outside buyers. Many sellers skip this step, and they are never able to find a buyer of any type. Those that do find a buyer may have only one shot at getting it right and securing their own “deal of a lifetime.”

What’s next? Download a free chapter of our book to learn more.