When you’re planning to sell your business, you’ll want to consider the different types of prospective business buyers.
Each kind of potential buyer has different characteristics and difficulties. Read this post as we discuss the pros and cons of each different type of prospective business buyers.
Pros and Cons of the 5 Types of Prospective Business Buyers
As you receive offers from parties interested in buying your business, you need to understand the parties’ background and intent to purchase.
Here are five of the most common types of prospective buyer profiles that you will encounter.
Individual Buyer
An individual buyer is one who isn’t affiliated with any external organization. Our brokers come into contact with this type of prospective buyer regularly.
Pros:
Working with individual buyers have advantages over the other types of business buyers such as:
- This type of buyer has fewer strings attached and are easier to work with than an established business.
- Individual buyers tend to have years of experience in their field or industry.
Cons:
Because approximately 40% of small business buyers are first-time buyers, they tend to require more training and assistance from the current business owner throughout the sale transaction.
Business Competitor
A business competitor is basically an existing company seeking to buy out their competitors. The current business wants to expand in their industry.
Pros:
Business competitors already understand your general business operations, so getting them up to speed is faster and easier
This type of prospective business buyer is excellent for a business owner who wants to sell with little or no involvement following the transaction.
Cons:
The business competitor may see buying a similar business as an easy way to increase their cash flow. In this instance, working with a business broker is essential to put a secure confidentiality agreement in place to keep the prospective buyer from learning the name of the business or its details before signing the contract.
Synergistic Buyer
The synergistic buyer is another type of buyer who is looking to expand. They feel that a particular business would complement their existing business. They want to combine the two businesses to lower their cost and acquire new customers.
Pros:
Synergistic parties are often more willing to pay a higher purchase price than the other profiles that may require more financial backing.
Cons:
Because their business operations are already established, the synergistic buyer typically doesn’t need to retain a lot of the seller’s employees, resulting in downsizing most of the time.
Financial Buyer
Financial buyers are mostly interested in the return they can get from investing in a particular business. They want the maximum return on investment and not necessarily control of the business operations.
Pros:
Because they are only focused on profit, the financial buyer is a good option for a business owner who wants to manage his company after it’s sold.
Cons:
Financial buyers tend to come with a long list of demands, expectations, and complications, but a business broker can help you overcome this.
Financial buyers are also known for offering lower purchase prices than the other types of business buyers. After all, they’re buying the business for financial purposes alone.
Family Member:
Often, a business owner will sell to a family member. They may want to be released from the financial burden while retaining a hand in the business.
Pros:
Often, the family member buying the business is already very familiar with the company and its operations.
The purchasing family member can lean on the previous owner to solve any issues or problems that may arise in the business.
Cons:
If the family member purchasing the business lacks the cash to buy the company, a disruption could follow.
If the buyer isn’t prepared to run the business, disruptions could follow.
As you can tell, there are different types of prospective business buyers, and each has its advantages and disadvantages.
And this list is just five of the most common buyer types. There are more.
The good news is that you can avoid all having to learn all of the nuances of each buyer type. By enlisting the help of a professional business broker, you can remain focused on your business.
Contact us to learn how we can help you today.
