Here at First Choice Business Brokers we see all types of businesses sell to a wide range of buyers. After helping people buy and sell businesses over the past 2 decades, we’ve started to get a sense of people’s motivations for their purchases.
The largest group of buyers that we tend to see at First Choice are Financial Buyers. This group of people want to invest in smaller private enterprises. These buyers tend to be family investors, those seeking self employment, high net worth individuals, partnerships, conglomerates and private equity/venture capital firms.
Financial Buyers are motivated by the expectation that they can generate strong returns, and add value to the business using a combination of debt and improved financial performance. This group of buyers might seek to buy and improve an underperforming business, expand the business, or add-on to the business later.
Financial Buyers tend to have a plan as to how long they’ll hold the business for (usually 3 to 7 years), and what returns they seek from their initial investment. How much the buyers pay will vary greatly according to industry, geography and size of transaction. Financial buyers tend to make their decisions quickly, and are sophisticated. These buyers seek strong protection in their contracts of sale, and seek a trial period for the business to prove its worth, or a due diligence period.
Financial Buyers are looking for:
• Stable and predictable cash flow (including current owner’s time in the business)
• Reliable financial information (vital proof that your business is consistently profitable)
• Customer diversity
• Quality of workforce
• Capacity for growth (also called “potential”)
• Operating systems and procedures (including security systems, point of sale system, purchasing systems)
• Facility and equipment condition (including price of rent and length of lease, size of premises)
• Goodwill ( a high flow of customer traffic, and return customers, brand recognition, local reputation)
• Barriers to competition
• Product range
The second group of buyers that we see at First Choice are the Strategic Buyers. This group is smaller in number, but we are seeing their numbers increase. Strategic Buyers tend to be larger corporations that see value in some aspect of a vendors business in terms of synergies that could be achieved by merging the 2 businesses. Strategic Buyers tend to operate in the same industry as the business that they are buying. Their motivations include: gaining access to new markets, increasing market share, acquiring management resources, expertise or new technology.
Strategic Buyers are often attracted to larger transactions, because there is a high value in the synergies they seek to achieve (for example buying Registered Training Organisations, childcare centres, food manufacturing businesses). This group of buyer are usually slower to make decisions. There are also higher risks involved in these transactions (the risk of information leaks to suppliers/customers/staff, the risk of handling sensitive information, the risk of damage to reputation).
Both buyers and sellers need to use a good business broker. Buyers need business brokers because they are (quite rightly) cautious, and they seek protections and methods to test the business before they buy. Vendors need a good business broker because we’ve had experience in dealing with every type of buyer. We know the features that buyers are looking for in a business, and we know where the buyer sees value. We know how to market to buyers to ensure that your advertising targets the buyer’s needs. Importantly, we save time for vendors, because we have experience in seeing which buyers are likely to take the next step.