When you’re selling any kind of product or service as part of a business, it’s vital to think about the types of clients who are purchasing these products and services. Not only does this help you market things properly, it allows you to assess these various groups and tailor your products to them.
At Utah Business Consultants, we’re here to tell you that when selling your business, the same theme should apply (in slightly different ways, of course). Selling a business is a process that should include assessing the possible buyer types that might be out there, plus what you can expect from each type and how you should plan to work with them. Here are some of the most common business buyer types:
In many situations, you’ll plan to sell the business to a family member and will not open up the sale to other parties. These situations can be highly beneficial for many reasons, from the familiarity family members should have with the business to an understanding of core principles. From a day-to-day perspective, selling to family often offers the smoothest transition for employees and clients alike.
At the same time, it’s important not to let certain tricky family dynamics get in the way. What if you’ve been grooming a family member to eventually take over the business, but it’s become clear recently that they aren’t qualified or don’t want the job? What if a family member who had planned to buy the company no longer has the assets to do so? Consider these pitfalls well in advance.
Another very common business buyer is a competitor from within the same industry. Many business owners look to their competitors first when selling, knowing that they’ll be familiar with the business and will understand its value.
One vital consideration if you’re in negotiations with a competitor during a sale: A confidentiality agreement. If things happen to go south with the negotiations, you want to be legally protected.
Similar to market competitors, but with one catch: Synergistic buyers are those who have a business that’s similar to yours or complements it, and look to buy yours to fold it into one more effective company. Some of these arrangements will allow all employees from both sides to remain, while others may include some personnel changes.
Individual Vs. Financial Buyers
These two groups are similar, but not identical. Some individuals will purchase business with their own assets, sometimes to fulfill a lifelong dream of owning one or sometimes to apply their lifetime of business knowledge. In other cases, individuals will purchase businesses for purely financial reasons – these buyers will be primarily concerned with generating proper revenue so they can create profits.
For more on the kinds of buyers you may encounter during a business sale, or to learn about any of our exit planning or business brokerage services, speak to the staff at Utah Business Consultants today.
Myth Number One
It's a faulty assumption that prospective business buyers know from the outset the exact kind of business they want to buy. Experienced business brokers and intermediaries have learned that most business buyers end up with what is sometimes a far cry from what first captured their imagination.
Take, for example, the old story of the buyer who saw (and probably smelled) a doughnut shop in his dreams. This was the business he was sure he wanted to buy--until he found out that someone, most likely him, had to get up at 2 a.m. to make the doughnuts a reality. It is important that, before falling in love with a business dream, prospective buyers understand the realities and think hard about their own personalities--what they like and hate to do. Obviously, if one likes a good night's sleep, the doughnut shop is not a good business to go into.
In discovering the right business for the right personality, here are some of the crucial questions a prospective business buyer might ask himself or herself:
- Does the business look exciting and interesting to me?
- Do I feel that I can improve the business?
- Would the business offer me "pride of ownership"?
- Would I feel comfortable operating the business?
Myth Number Two
Another wrong theory about buyers is that money is the key motivator in their seeking to own their own business. In fact, if money is a buyer's main reason for desiring to own a business, a "wrong-move" alarm should go off before things go any further. Most studies indicate that money is somewhere below the midway point of the list of reasons people are interested in a self-owned business. Those who go into business for themselves and/or buy a business want to run their own "show," be their own boss and build something for themselves. Money is the by-product (hopefully) of having the opportunity to achieve business success on their own terms.
A recent newsletter from a franchise consulting company contains comments from people who have just purchased franchises. These people provide resounding proof that money is not a major motivator. With franchises, they point out, money can't be an issue, because a new franchise has no income, only the promise of it.
If money doesn't provide the driving force behind buying a business--what does? The following survey shows the real reasons for wanting to be a part of the independent business scene:
- Pride in service or product
- Customer contact
- Employee contact
And what about the buyer who dreamed of doughnuts? He is purportedly now content, testing the wares in the mattress section of his franchise furniture store.