How to Identify the Market for Selling Your Business
If you’re wondering how to sell a business, one of your first questions is likely to consider who will buy it. And that’s a vital question.
The buyer of your business will determine the company’s future and what it will look like. For example, the buyer will decide whether to keep your current employees or let them go, and whether to raise prices or move out of your current customers’ neighborhoods. Identifying the right buyers is one of the most important considerations in determining how to sell a business.
Before identifying a buyer, it’s important to think about what’s important to you: Do you simply want to get a fair price for your business? Or are you concerned about how the business will be managed in the future? Do you want to have some say over future decisions, or will you be ok with selling and simply moving on? Your answers to these questions will determine the type of buyer you should seek.
But your preference isn’t the only thing to consider. You must also think about the type of buyer that may be interested in your business. And if your first-choice buyer type doesn’t work out, determine whether you are still committed to selling. Here’s a look at the various types of buyers to consider and how to decide which one to target.
Gauge interest among employees and family members
Business owners often hope that they can keep the business within their own families upon retirement. However, business advisors at Davie Kaplan observe that more than half the time, the owner’s children and grandchildren are not interested in the business.
If your plan is to transfer ownership of your business to a family member, don’t assume that he or she will be on board. Take time to have a frank conversation about the family member’s level of interest and expectations.
In some cases, if a family member is not interested or available to take over the business, an internal employee may be a good choice. Consider whether you have a current employee who has the financial acumen and entrepreneurial mindset to take over and run your business. If so, talk to him or her about the possibility and their level of interest.
Consider local competitors versus private equity firms
If you don’t have a family member, employee, or another person who is already familiar with your business and interested in buying it, you’ll have to broaden your search. Usually, the choice is between a local competitor or small business owner or a private equity or venture capital (VC) group.
In some industries, geographic proximity matters a great deal. For example, say you’ve built a well-known appliance store and service center over the past 50 years. In the absence of a family member or employee willing to take over the business, the next best option might be the owner of another appliance store from a nearby town. The local competitor may already have name recognition among many of your customers, as well as the ability to retain many of your current employees and customers without missing a beat.
In contrast, a private equity or VC firm may be able to offer you more money than a local competitor. However, the private equity or VC firm may not be able to guarantee ongoing employment for your current employees or management. If that’s important to you, you could consider including requirements to that effect in the purchase agreement—but there’s no guarantee that the buyer will agree to those terms.
Which option will provide you with the best outcome?
To determine the right buyer for your business, think carefully about the outcome that matters most to you. Are you most interested in:
- Getting the most money for your business
- Having the ability or requirement to continue working in the business
- Maintaining your current employees’ jobs
When you’ve determined your top priorities for the sale, examine each of the potential buyers—a family member, an internal employee, a local competitor or a private equity firm—and determine your personal financial outcome, as well as the outcomes for your other priorities, in each scenario.
After examining each scenario in relation to your priorities, you should have a good idea of how to sell a business and what the future will look like for you and your business with each type of potential buyer.