If you anticipate selling your business in the next few years, you’ve probably already begun to imagine who the buyer will be.
You might hear stories about your former business-owner friends and who they sold to or catch a news story highlighting a successful transition, but still, wonder the best path is for you as you exit your business.
To help you consider all options, here is a list of the main types of buyers you will encounter, and the pros and cons that come with each.
This is often the first transition option that will come to a business owner’s mind. He or she will consider children as the ones to take over the family business.
While there are inherent benefits such as familiarity with the business and an elevated level of trust, you must take a deep look at whether the child is a good fit to run the business, and if they in fact want to run the business. There is also heightened risk with a family transition in the event the business should falter: not only might the seller forego any future payments he may be due, but there is the added damage that may have been done to family relationships.
Remember, family is more important than business!
This is another company that would acquire you. They might be a direct competitor, or perhaps they are in a similar industry and are looking to enter yours.
Either way, they have synergies to be gained by acquiring you, making the deal more beneficial to them than to other buyers. For example, if they were to roll you in and use the components of their own business already in place, they might be able to eliminate a lot of your current office expenses, combine manufacturing facilities, etc. This makes the business more profitable to them, so they might value your business higher than other buyers.
A negative is that they might make significant reductions to your staff, and if you value your employees' jobs going forward, this might not be the best buyer for you.
This buyer looks at your business from an investment perspective. They might call themselves a private equity group or a family office, but either way they have a time frame of ownership and a return on investment in mind.
The pro is they have money and expertise behind them to grow your business to the next level. Oftentimes, they might make a partial payment to you up front and keep you on board, allowing you to benefit from their growth efforts when they sell the company or buy you out completely years later.
The con: You will likely be asked to stay on as an employee for at least a year, something you probably aren’t used to.
At first glance, this might seem to be a good fit. They know your business, have proven their loyalty, and you can trust them.
There are pitfalls to be aware of, however. Do they have the money to give you the down payment you are looking for? Often employees don’t have the financial means to buy your business.
Do they have the skills to run the company? The character traits that make good employees often don’t translate to being good owners.
While perhaps not the first buyer type that comes to mind, the individual buyer might just be the best fit for you and your business. This buyer is either a serial entrepreneur or someone leaving corporate America to chase their dream.
As long as they have savings and the ability to get financing, you will get the cash you need upon closing the sale.
Because of their lack of specific industry experience, they value what you have built and will pay a premium price to ensure your commitment to a smooth and successful transition.
There’s not one single buyer type that is best. All can bring good things but also drawbacks to a business transition. Knowing the different options and their pros and cons can help you better clarify your goals as you exit your business, and prepare you for responding as different buyers make you offers to purchase your company.