Buyers buy businesses for many of the same reasons sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchasing a business. If the buyer is not serious, the sale will never close. Here are just a few of the reasons buyers buy businesses:
- Laid-off, fired, transferred (or about to be any of them)
- Early retirement (forced or not)
- Job dissatisfaction
- Desire for more control over their lives
- Desire to do their own thing
The average individual buyer seeking to replace a lost job or wanting to get out of an uncomfortable job situation is usually male (however, more and more women are going into business for themselves, so this is rapidly changing). Almost 50 percent of potential buyers will have less than $100,000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The average buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.
For the typical buyer, their primary reason for going into business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing, be in charge of their own destiny, and they don’t want to work for anyone. Money is important, but it’s not at the top of the list – in fact, it’s probably in fourth or fifth place in their overall list of reasons to buy. In order to pursue the dream of owning one’s own business, buyers must be able to make that “leap of faith” necessary to risk purchasing and operating their own business.
Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses. Keep in mind the following traits of a willing buyer:
- The desire to buy a business
- The need and urgency to buy a business
- The financial resources
- The ability to make their own decisions
- Reasonable expectations of what business ownership can do for them
Is your business exit ready?
If you’re planning to exit your company in the near future, you may find EastWind’s Exit Strategy Playbook helpful in developing your own exit strategy, making your company more sellable.
What Do Buyers Want to Know?
This may be a bit premature since you may not have decided to sell, but it can help in your decision-making process to understand not only who the buyer is, but also what they will want to know in order to buy your business. Below are ten questions you might be asked and should be prepared to answer:
- How much money is required to buy the business?
- What is the annual increase in sales?
- How much is the inventory?
- What is the debt?
- Will the seller train and stay on for a while?
- What makes the business different/special/unique?
- What further defines the product or service? Bid work? Repeat business?
- What can be done to grow the business?
- What can the buyer do to add value?
- What is the profit picture in bad times as well as good?
Understanding who potential buyers are, what their motivations and limitations may be, and what they want to know will help you prepare for the successful sale of your business.