As a business owner, there usually comes a point in your entrepreneurial journey when it’s time to say goodbye to your SME. Whatever the reason, from impending retirement to starting afresh somewhere new, selling a business takes time and effort, requiring a degree of forethought before you dive in. So, if your list of New Year’s resolutions includes selling your business, then there’s plenty to think about in the coming months, from planning your exit strategy to closing the sale, each and every step of the process should give you pause for thought.
Very often, the first question for owners looking to sell a business revolves around the kind of profits that will be pocketed once the transaction is complete. However, at this stage, potential profit shouldn’t be your only concern, and finding the right buyer is often more important than simply selling to the highest bidder. Advertising your business for sale through an online marketplace is a great way to generate interest in any business, but choosing the right buyer for your business is another matter entirely.
Here then, we look at the different types of buyer, why it is important to choose the right buyer, and how you might begin to narrow down the list of potential suitors.
The 3 Types of Buyer
Generally speaking, buyers can be split into three different categories, these are:
- Financial Buyer
A financial buyer is strictly concerned with the bottom line. They are usually represented by professional investors who are more interested in profit margins than actually running a business. They may either see your business as a mismanaged asset that can be optimised to generate greater profit or they are purchasing with the longer-term goal of overall appreciation over time.
- Strategic Buyer
Strategic buyers are, more often than not, already operating within your industry and are looking to expand their influence. They either want to eliminate the competition with a business purchase or grow their own SME quickly and aggressively.
- Operator Buyer
This type of buyer is usually represented by individuals or small groups looking to actually buy and operate a business. They are probably the most common type of buyer when it comes to small businesses and their motivations are generally to run a profitable business and possibly sell for a large sum in the future.
Finding the Right Buyer
When considering a list of potential buyers, business owners are usually very focused on the immediate conditions of sale. This includes how quickly the buyer can complete the sale, the kind of payment plans possible, and of course, the total amount paid for the business. However, the right buyer for your particular business will depend on a whole lot more than this, and identifying the type of buyers while weighing up your initial motivations for selling your business will play a key role.
For instance, financial buyers might be considered the most proactive when it comes to finding and completing a sale, which makes sense for anyone looking to sell a business quickly. On the other hand, if you have a solid exit plan and a concrete price tag in mind, then avoiding the aggressive negotiation tactics of this type of seller will likely play to your advantage.
Strategic buyers might want your business to form a cornerstone of a new empire. In fact, they might want your particular piece of the pie so badly that they are willing to pay above the going rate. This will probably require some fierce negotiations but after all, if you are going to see your hard work fall into the hands of a bitter rival, it should at least be a lucrative deal.
Operator buyers are the kind of buyers that everyone can relate to, and for retirees, they are very often family members or peers. However, selling to a fresh-faced entrepreneur, for instance, means you may have to sacrifice profit or accept a more convoluted payment schedule. Put simply, the right buyer for your business is the one that fulfils the requirements of your exit strategy and business sales plan.
The Future of Your Business
A final word on the future of your business. When you are choosing the right buyer, think long and hard about how much you care about what happens to your SME after the sale is complete. After all, you’ve probably put years of work into its operation. Additionally, sellers’ remorse can be a very real and painful experience, for both retirees and first-time sellers.
The right buyer for your business might be financially motivated, keeping you on to ensure the business runs smoothly as it gradually accrues value over the coming years. They might be strategically minded, promising that your much-loved employees will have a place in the business as it becomes part of a larger organisation. Or, they might be operationally minded, essentially running the business in the same way as it has been under your leadership.
However, each of these outcomes also has the potential to look a lot less optimistic. For example, you might have to watch your business be swallowed and disbanded, your former employees put out of a job, and possibly even watch your hard-fought brand trust broken with inferior products or services. With this in mind, ensure you speak with any potential buyers about how they see the future of your business too. This way, everyone is on the same page and you can mitigate the dreaded sellers’ remorse.
Carlo is the Director of DaltonsBusiness the UK’s No1 Business for sale marketplace, prior to joining Daltons he held a number of senior roles at Rightmove and was also involved in launching a classified portal in Russia. Daltons has been connecting those looking to buy businesses with business sellers for over 150 years.
Carlo Walther | Commercial Director | Daltons Business | Metropolis Business Media