It’s tempting to gloss over the topic of understanding business buyers before selling your business. Aren’t all business buyers essentially the same? A check is a check, after all. Does it really make much difference when it’s all said and done?
The answer is a resounding yes!
Different buyers have different goals for purchasing your business. They also have different ways of financing the purchase and structuring a deal. Each buyer type may also view certain aspects of your business in a very different light.
When you sell your business, it helps to think of potential business buyers as customers. The more you know about potential customers — the more you understand their motivations and possible concerns — the better prepared you are to market your business for sale, find the right buyer, and get a deal done.
In this article, we’ll take a look at the four main types of business buyers. We’ll discuss their differences and similarities, as well as their reasons for wanting to acquire a business. We’ll also offer some tips on how to make your business attractive to any buyer type.
Who this article is for: This article is for owners of lower middle market businesses (annual sales from $2M to $25M) who are considering a sale – or choosing a small business exit strategy – in the next 6 to 36 months.
Before we get into how business buyers differ, it’s worth noting that most buyers have a number of basic things in common. These similarities can include:
Knowing these things can help you prepare your business for sale and anticipate how buyers will approach the opportunity to acquire it.
To get further insight into the buyer’s mind, however, you need to have a basic understanding of the four main types of business buyers who are active in the lower middle market.
The first two buyer types are considered financial buyers. Strategic buyers are a category unto themselves, and both internal buyers and private equity buyers have a number of sub-categories. Let’s take a closer look at each type.
Many small businesses are purchased by an individual or small group of individuals. Some of these buyers are serial entrepreneurs who prefer to buy a successful business rather than start one. They tend to judge a business not only on the strength of its financials but also on its ability to improve and/or grow it after the sale.
Individual buyers may have plans to eventually sell the business when it’s achieved certain milestones, thereby receiving a handsome return on their investment. But these buyers don’t typically have a specific time horizon in mind.