For anyone interested in selling their company, one of the first questions they might have is, who is the right buyer to purchase their company, and how do we find them? At the beginning of the process, you often don’t know who the right buyer is. It’s important to keep an open mind. However, certain criteria are important. Number one is that the buyer has enough money to purchase your business. This doesn’t necessarily mean they have enough money to purchase a business without financing. But they must have enough funds for a down payment and have good credit and enough relevant experience to qualify for a bank loan. An experienced business broker has contacts with banks and can help with this process of buyer qualification.
Secondly, they should have some relevant experience. This might mean that they already own a business in the same industry as yours. Perhaps they have already acquired other companies like yours and are looking to grow through acquisition. These are all pluses. They may be a private equity company that owns other businesses in your sector or similar sectors and will know how to unlock the potential of your business. Or it could be an individual that has worked in your sector, has saved money, and is now looking to own their business after working for other people. In some cases, the buyer may not have direct experience in your industry, but they have someone that will run it for them that does have experience. They may also be an entrepreneur that purchases multiple businesses in different sectors, and they are able to learn new industries and companies quickly based on their experience of knowing what to look for. They may also have experience in growing companies with expertise in marketing and management.
We’ve identified some of the criteria of the buyers that might buy your company. Now how do we find them?
There are a number of different ways to find well-qualified buyers to purchase a specific company. In order to do so, a business broker needs to have a well-thought-out marketing plan and be willing to talk with a number of buyers that are not qualified. After all, a prospective seller doesn’t want to spend hours talking with tire kickers. The first step in marketing a business for sale is to gather information on the business. This includes financial information as well as information on employees, customers, suppliers, and the role of the owner.
Then a business brokerage firm needs to write a confidential information memorandum (CIM). This includes most of the information that a buyer would like to know about a business for sale. Also, a one-page teaser will be written that provides basic information on a business that will be made public and used to advertise a business for sale.
The teaser can be used to market the business in several ways. You can advertise the business on business-for-sale sites like bizbuysell or businessesforsale.com. These are solid ways to find buyers. In addition, though, you want a business brokerage firm that has experience selling companies like yours in the industry that you are in and a similar size to yours. Why? They will have buyers that purchase companies like yours and will be able to go back to these buyers, speak a language that they understand, and convey the value that your business has. A business brokerage firm that has years of experience selling into this industry will have built up a list of buyers that included other large companies in your industry, wealthy entrepreneurs, and private equity groups focused on your industry. These buyers are eager to learn about new opportunities in their industry of expertise.
Before a buyer can view the CIM, they will need to sign a confidentiality agreement and provide information on their qualifications. This helps to narrow down the number of buyers and rule out people that don’t have the money or qualifications to buy and run your business. After a qualified buyer has signed a confidentiality agreement and reviewed the CIM, many will self-qualify and not be interested in the business. A business broker’s job is not to convince buyers to buy but rather to narrow down the buyers to the best ones that are both qualified and interested. A good business brokerage firm will have multiple ways to get a large pool of potential buyers to get the best ones.
Once you have the top buyers, then it’s time to arrange phone calls or meetings with the owner. A buyer may look good on paper, but are they asking the right questions? Do they have a solid vision for the future of the company, and is there good chemistry between buyer and seller? These are things that you can better determine with a conversation. Do you feel that the buyer will take care of your customers and employees the way that you want to see? A buyer/seller meeting is an opportunity not only for the buyer to ask questions, but the seller needs to ask their questions as well.
After you have spoken with buyers and asked and answered questions, it is usually time for the interested buyers to make an offer. After all, you want to maximize your sale price. So even though a buyer may be a perfect fit, they will also need to come up with a bid that you are comfortable with. It’s not just about the price for your business. But what are the terms of the deal? Will you need to stay on for an extended period after the sale? Is the buyer requesting the seller to finance part of the purchase price, or do they have their own financing? These are all considerations that you need to talk over with your business broker to make a final determination on which offer to accept.
A business broker can help to write up a letter of intent (LOI) which will be negotiated and signed before moving on to due diligence. Due diligence is an opportunity for the buyer to learn more about the business and make sure that everything is as stated in the initial marketing material for the business. In addition, a purchase and sale agreement needs to be negotiated between attorneys. It’s important that both buyer and seller are willing to give and take. Neither side will get everything they want, so there needs to be a compromise so that both sides can feel comfortable that the deal will work out well.
At last, the closing. It’s satisfying to close the deal with the right buyer for your business. One that you get along with, has paid a good price for your business, and you feel comfortable handing off the reins to.
For over 20 years, Synergy Business Brokers has been locating the right buyers for hundreds of our client’s businesses. We specialize in selling profitable companies with annual revenues of $700,000 to $70 Million in technology, manufacturing, distribution, health care, construction, transportation, and services. Contact us today for a free, confidential consultation. We spend much more on marketing your business than the typical business broker. This is one of the reasons that we are in a select group of top business brokers in the country and #1 for the industries that we specialize in. We have a number of buyers in our areas of expertise and can locate the right buyer for your company.
