Who Will Buy Your Business - Part 2
In Part 1 we introduced the two main groups of buyers of companies: Insiders and Outsiders.
We then focused the discussion on Insiders - your family members, key managers, and other (or all) employees.
In this article we'll focus our attention on Outsiders.
The main advantage in selling your company to an Outsider is the fact that they usually bring a significant amount of cash to the closing table.
We'll divide Outsiders into three groups of buyers: Individuals, Financial buyers, and Strategic buyers.
In this article we'll focus on Individual buyers.
Individuals are usually wealthy people looking for a change of pace.
Often these buyers are refugees from corporate America looking to put their accumulated brokerage savings to work doing something they enjoy.
Lifestyle is a major reason why these buyers are interested in purchasing a business.
But make no mistake - these buyers are educated and will not overpay.
Usually they have some industry experience in the businesses they are evaluating, and they will calculate their expected Return on their Investment (ROI) from buying your business.
If the ROI does not exceed (by a wide margin) their returns from a passive stock index fund investment, they will pass.
You will encounter individual buyers in transactions less than $2 or $3 million.
Individual buyers with an impressive enough background may pair up with a high-net worth investor (or in rare cases a Private Equity firm).
One needs to be careful when dealing with individuals, however, because they will often say that they are partnered with an investor whether they are or they aren't.
One of the dangers of marketing your company to individual buyers is that it can be a waste of time unless your intermediary has a good screening process.
Every interested party should submit financial statements and proof of liquidity (in the form of brokerage or bank statements) in order for your intermediary to separate the viable buyers from the tire kickers.
Finally, be aware that individual buyers will usually require SBA financing to purchase your company.
This is good for you in that it increases the amount of cash you receive at closing, but you will need to make sure the deal is doable for the bank.
This means there needs to be adequate cash flow to service the debt plus collateral.
If you are a service company with limited assets the buyer may have to put up additional personal collateral and/or you'll have to take back a note for a portion of the purchase price.
You'll probably have to take back a note in any circumstance, because this signals to the buyer and the bank that you believe in the future prospects of the company.
This further emphasizes the importance of screening your buyers - you'll want to make sure that you don't sell the company to someone who is going to run it into the ground.
In Part 3 we'll talk about Financial buyers.
We then focused the discussion on Insiders - your family members, key managers, and other (or all) employees.
In this article we'll focus our attention on Outsiders.
The main advantage in selling your company to an Outsider is the fact that they usually bring a significant amount of cash to the closing table.
We'll divide Outsiders into three groups of buyers: Individuals, Financial buyers, and Strategic buyers.
In this article we'll focus on Individual buyers.
Individuals are usually wealthy people looking for a change of pace.
Often these buyers are refugees from corporate America looking to put their accumulated brokerage savings to work doing something they enjoy.
Lifestyle is a major reason why these buyers are interested in purchasing a business.
But make no mistake - these buyers are educated and will not overpay.
Usually they have some industry experience in the businesses they are evaluating, and they will calculate their expected Return on their Investment (ROI) from buying your business.
If the ROI does not exceed (by a wide margin) their returns from a passive stock index fund investment, they will pass.
You will encounter individual buyers in transactions less than $2 or $3 million.
Individual buyers with an impressive enough background may pair up with a high-net worth investor (or in rare cases a Private Equity firm).
One needs to be careful when dealing with individuals, however, because they will often say that they are partnered with an investor whether they are or they aren't.
One of the dangers of marketing your company to individual buyers is that it can be a waste of time unless your intermediary has a good screening process.
Every interested party should submit financial statements and proof of liquidity (in the form of brokerage or bank statements) in order for your intermediary to separate the viable buyers from the tire kickers.
Finally, be aware that individual buyers will usually require SBA financing to purchase your company.
This is good for you in that it increases the amount of cash you receive at closing, but you will need to make sure the deal is doable for the bank.
This means there needs to be adequate cash flow to service the debt plus collateral.
If you are a service company with limited assets the buyer may have to put up additional personal collateral and/or you'll have to take back a note for a portion of the purchase price.
You'll probably have to take back a note in any circumstance, because this signals to the buyer and the bank that you believe in the future prospects of the company.
This further emphasizes the importance of screening your buyers - you'll want to make sure that you don't sell the company to someone who is going to run it into the ground.
In Part 3 we'll talk about Financial buyers.
Source...