When you’re a small business owner looking for a business buyer, finding the “right” person can be tough! Don’t worry, though. We’ve taken the liberty of breaking down the different types of people you may encounter on your journey through the sale process in hopes that it will alleviate some of your concerns.
How Many Types of Business Buyers Exist?
First of all, business buyers tend to fall into four different types. This isn’t a science, however; someone may fall into one or more categories — or perhaps they won’t fall into any of the following at all.
1. Individual Business Buyers
Commonly, you’ll find individual buyers when you look into selling your business. The individual buyer is represented by a single person or a small group. They often have savings or capital from a previous business venture, or they are taking out a small business loan to meet your asking price.
You can think of this as the “entrepreneurial” style of business buying — these are people who are interested in small business ownership. Most of them don’t plan for a significant overhaul of what you’ve already established, either.
These business buyers will be committed to its longevity and success. Individual buyers generally want to hold on to your business, unlike financial buyers who are content to maximize its worth and sell it once it outlives its usefulness.
2. Strategic Buyers
Strategic business buyers, sometimes referred to as “synergistic” buyers, are usually entities focused on furthering their own interests. They can technically be individuals, but usually, their scope is a bit too large for any single person.
They are people or businesses who see value in owning your business. Their goal is not always to allow your business to continue or even to thrive. Direct competitors are one type of strategic buyer, but this category can also include small businesses in different locations that share the same niche.
Since there is a strategic benefit to gaining your business — whether it’s eliminating the competition or expanding into a new city’s market — it becomes a strategic move for them to acquire your business.
A strategic buyer may not “feel right” in some cases, but this type of potential buyer is just as valid as any other. As with any other business transaction, just make sure you ask the right questions.
3. Financial Buyers
There are several types of people who fall into the “financial buyer” category, including high-net-worth individuals and private equity firms. These are the people who want to maximize your business’s value for their own sake, achieving a solid ROI.
In a sense, they are also strategic buyers – but because their bottom line is only financial, not necessarily the business’s growth, they do technically belong in their own category.
Private Equity Firms
Potential buyers who fall into this category are private equity buyers. They often spend a considerable amount of time doing due diligence,
Family Office Buyers
As the name implies, these are family offices — or teams of family members — who are acting together in the interest of their family’s future. While an individual buyer may be hoping to invest in their own short-term future, the family office buyer is looking for a business that will generate revenue for years to come.
4. Existing Employees or Management Team (Internal Buyers)
There is often less to worry about when your buyer is someone that you’re already familiar with. By passing the torch to someone (or multiple people) that you trust, you can ensure that the company stays with someone who agrees with its values and might continue to uphold them – or at least, who might continue running the business in a similar way.
In addition, since your employees and management team already have proven industry experience, they may seem like the perfect people to become new business owners.
In larger companies where employees hold a share of the stock, you can use an Employee Stock Ownership Plan (ESOP) to allow your employees to buy into the business a little bit at a time. This does extend the whole process over a longer period of time, but it’s likely to make for quite a smooth transition period.
So, Which Type of Buyer Is The “Right” One?
There is, of course, no “best” or “right” type of buyer to look out for.
All potential business buyers or sellers should speak with a broker to get their questions answered more efficiently, as the specifics of their circumstances could impact the more general information featured in this article.
Do I Need a Business Valuation?
It’s always a good idea to consider a valuation if you’re thinking about selling your business. Learning what your business is worth can help you sift through the possible buyers to find someone you feel comfortable selling to.
Talk to Terry Watts, your Sacramento Business Broker
If you’re looking to take the next step into business ownership, or if you’d like to discuss how to find qualified buyers for your business, take a moment to contact Terry Watts at (916) 905-4997 or by filling out this form.