How to Sell Your Business – Who is my Buyer? For Main Street Businesses
What every business broker, business intermediary, and business appraiser knows is that in order to get the highest price when you want to sell your business you must identify and attract the best, most motivated and qualified buyer for your business. This will vary with your size, profitability, industry and so on. This post is two of two on the topic. Please read the other post for general information on the topic. Below are the buyer types for smaller businesses with a value of up to $3 to $5 Million.
Remember to make your business as desirable as possible for your ‘best’ buyer. This may involve physical changes to the business over time. It may involve providing financing or training that is a little out of the norm. It certainly will involve looking at the prospective buyers of your business as you would your regular customers and make your product (the total business) as great as possible.
Below, we are outlining how we classify buyer groups. As with any grouping of people some people will fit several groups and some will not fit any.
Tradesmen With a Windfall. All joking aside, lottery winnings and more often inheritances have been the down payment on more than one business. Sometimes equity in a home serves the same purpose. It is very difficult for working people to save enough money to buy a business. Their preference is usually for smaller businesses that involve a trade such as small plumbing shops, auto shops, machine shops, etc. Often the owner is the primary manager and there are a few other mechanics but little support staff. Buyers tend to know the trade and be comfortable that they can do the work if all else fails. If the prospect has a little more money and a business background they may buy a little larger business. Typical transactions range from $50,000 to $500,000
New Americans. This Buyer group tends to be buying jobs. They are often overqualified but have language barriers, and they typically buy businesses such as delis, convenience stores, and gas-and-go stations.
Corporate Sales & Middle Managers. They are similar to the tradesmen but they tend to buy a little larger business. They buy profitable businesses and are interested in proven results: they do not want to re-invent the wheel. They tend to buy businesses with two or three office support staff in addition to the production and sales people who know how to ‘run the shop’ when the owner is out. They will often pay the best price because they are paying for the complete system including customer lists and goodwill. Typical transactions range from $350,000 to $1,500,000.
Key Employees. Key employees are often the best Buyers because they really know the business and they often have demonstrated experience running it. They have a vested interest and have already bought into solving the problems and living with the risk inherent in that business. However, many times key employees do not have the cash and the access to capital to buy the business. They also may not have the energy or interest in being an owner. Many owners have assumed their 60 year old managers would want to buy them out only to learn that the managers intend to retire the day the owner does.
Remember, in all cases, identify your best buyer. Improve and market your business to attract that buyer. If you are unsure about your best buyer do not hesitate to call or email. and have a confidential conversation.Gregory R. Caruso, Esquire, CPA, CVA
Harvest Business Advisors