Who Will Buy A Business?
The decision to sell your business may be one of the most important choices you make in your life. In the same vein, the decision to buy a business is incredibly impactful. As such, it behooves sellers to know about the people who are buying their business.
This is, in part, to ensure the seller’s legacy - you want to know that your business will be in good hands. It’s also an important piece of the sales process - knowing more about the most common types of buyers can help you know where to look and what your expected role may be in the post-sale process.
With that in mind, let’s take a look at who is most likely to buy a business:
The two categories of buyers
Buyers can be broadly grouped into two categories: Investors and entrepreneurs. Investors are often looking for passive income - groups of investors will often pool funds together and may hire a third party to run the business they purchase. Entrepreneurs, on the other hand, are usually individuals, couples, or a family who want to purchase your business and run it themselves.
To help you get a better idea of the types of buyers who fall under each category, and their motives, let’s delve a little deeper into investors and entrepreneurs:
Investors as buyers
You might not think that classic, Wall Street-style investors would be interested in Main Street businesses, but that’s been changing in recent years. Investors are looking for one thing - a solid return on their investment. That means they tend to be very selective about the businesses they’re willing to invest in. They may also target short term growth over long term growth - they want a reasonably fast return on investment.
These types of investors are usually private equity firms - they might be a formal, private equity firm or a group of individuals who have banded together to make an investment in a more informal manner. Competitors or business owners who believe a seller’s business may have synergy with theirs might also be interested.
It may be in a seller’s interest to entertain offers from all of these buyers, even if they’re not sure if they want to sell to a particular group of investors. Selling to a competitor or an investment firm may sting - but it could also lead to the best offer for the business.
Entrepreneurs as buyers
Entrepreneurs will want to take over the business on your behalf. They’re often individuals or couples. Most entrepreneurs are first or second-time buyers - about 95% of them are between 35 and 59 years of age.
Many entrepreneur-buyers in Canada are immigrants who moved to Canada or the United States within the last 10-15 years. In some cases, a foreign entrepreneur will want to buy a seller’s business as part of the process of immigrating to Canada.
More often than not, the buyer will already have a great deal of experience in the industry of the business they’re purchasing. They may (as most buyers do) ask the seller to stay on board for some time to make the transition smoother.
As we’ve discussed in the blog post “Financing the Deal”, it’s important for sellers to know how buyers will acquire the means to purchase a business. Entrepreneurs will typically have about 25-35% of the purchase price as a down payment. From there, they might use a variety of means to finance the rest of the deal, including a loan - sometimes from a bank and sometimes from the seller.
Looking to sell? Call Jason Brice
Finding the right buyer for your business can be tough - even if you do know what you’re looking for. Don’t worry - we’re here to help. Call Jason Brice in Vancouver, and find the perfect buyer for your business.