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What Types Of Buyers Will Be Interested In Buying My Business?

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Comments & Replies: 6     Views: 2599     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, ProBuy/ProSell Program Director

Topics: Selling A Business     Tags: selling a business

I often get asked by owners who are looking to sell their business on the BizBen ProSell Program about what type of buyers they should expect to encounter during the sales process. The answer depends on the type of business being sold, but in general there are several different types of buyers that could be encountered. Potential buyers of businesses vary from entrepreneurs to publicly owned companies. The ideal buyer for a business depends upon the various characteristics of the company being sold.

Here are examples of some of the different types of buyers one may encounter while selling their business:

(1) Individual entrepreneurs pursuing their dream of owning their own business.
(2) Employees looking to buy out the owner.
(3) A family member looking to keep the family business in the family.
(4) Corporations with strategic reasons for buying a business beyond just financial ones.
(5) Foreign investors seeking entry into the country as well as economic support once here.
(6) Silent investors seeking higher returns than might be available in other investment options.

Most buyers are almost always motivated to purchase a business for two reasons - synergy and/or economy. A buyer motivated by synergy is a buyer who believes that the value of combining firms or companies is greater than the value of the company’s continuing to operate separately. By acquiring or merging overall market share can be increased, competition is reduced and product lines or management skill can be added. The economically motivated buyer evaluates buying a business strictly on the economic benefit to them from owning the firm, typically thought of as return on investment.

Generally speaking, I place buyers into three categories:

The "career seeker" who is looking for a business that provides him an "evergreen" job; one where he is the boss and can decide can determine exactly when and how he will be working in the business.

The next is the "investor" who wants a business that will be semi-absentee owned and run by an employee-manager.

And, finally, the "strategic player" who is already in the business and wants to broaden or deepen their existing market presence.

Each of these buyers has different criteria for a business acquisition. Each has a different ROI requirement. And, each must be approached from a different perspective. When value a business, we often consider who the likely type of buyer will be - because the price each will pay can be substantially different for the same business.

Contributor: Business Broker: LA County Area

Many good points here, Craig, Tim & Peter. I'm often amazed at how people can change their minds so quickly, especially when presented with compelling financial info. I will never forget my buyer who bought a gas station years ago. In his initial call, he said he was looking for a restaurant or coffee shop and quickly told me "there is no way anyone in their right mind would buy a gas station." Less than a year later, he was opening his Chevron station in the Inland Empire.

It turns out, he had grown up just two miles from this gas station and he had some affection for it, and the location. Eventually, he came to realize it was a good value-add project worth taking on. He's still there and he's doing well. It's so much more instructive to put buyer prospects into these categories spelled out by Tim and Peter, than trying to pigeonhole them into a specific business type.

Recognizing how often it is that buyers change their minds during their search is why I use a simple approach when buyers ask me to "find a business" for them.

Instead, I work with them to educate them how to use online listing services ( being the best) to establish their criteria and search effectively and creatively for appropriate businesses. Prospective buyers will do a far better job than I will, because they will see other businesses that fall outside their predetermined parameters.

As the buyers identify various businesses, they advise us to contact the listing broker, provide the NDA, obtain the business details, help the buyer determine the relative merits and value of the business, and, when appropriate, submit an offer and negotiate a deal. Invariably, buyers using this approach will find viable purchase targets that I never would have thought would interest them.

So, back to the topic -- an interested buyer could be anyone, even the most unlikely.

I've worked with all types of buyers, those who have ran businesses before, people who are fleeing the corporate world and tired of working for other people, brother and sisters/husbands and wives/friends who may have inherited some money and are looking to get into business together, and the list goes on. Unfortunately I can't predict who will buy the business when they walk in the door, and so it's worth noting to treat all buyers as if they are a potential verified buyer, because the longer being in business the more cynical we in sales can become thinking "oh, these ones won't buy" but as I've said you never know.

  Helpful Resources To Assist In Selling And Buying California Businesses
Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Brad Steinberg, Broker - Laundromat Specialists

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

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