Finding and qualifying buyers
Before you advertise your business for sale, it's a good idea to tell your employees, and perhaps even your trusted clients, suppliers, distributors and manufacturers. This helps to build goodwill as you are not selling the business behind their back, and you may even find a genuine buyer in this group.
To avoid people making assumptions about why you're selling, and what this means for the health of your business, you could:
- test the market by putting out feelers, but only to people you know and trust (such as family members)
- advertise widely without using the name of your business
- use a reputable business broker who should already have a list of contacts and can advertise your business using their trading name rather than yours.
Types of buyers
Buyers generally fall within 3 main categories:
Financial buyers are interested in your business's cash flow. They'll usually be individuals or another business with money to invest. They want a return on their investment but won't necessarily want to be involved in the daily running of the business.
This type of buyer is likely to examine your financial records very closely. They'll be looking for a healthy business with recorded growth that requires little change or intervention to continue operating successfully.
Strategic buyers are looking to acquire your business to make it work as part of their own business strategy. For example, a buyer who runs a similar business to yours in a different area may want to acquire your business to remove competition.
Also within this category is the buyer who is in a similar business but who is not a direct competitor (perhaps you sell a product that complements their own business).
Strategic buyers are usually the buyers prepared to pay the most for your business. The more your products are aligned with or compete directly with theirs, the higher the price they're often willing to pay.
These buyers are people you know - family, friends or employees. This type of buyer knows a lot about your business already and could have personal reasons for wanting to see it continue.
They might be willing to pay more for your business than an outside financial buyer but they're also less likely to have the required capital for outright purchase.
Learn more about selling to family or employees.
Qualifying potential buyers
Although potential buyers may show interest in your business, you'll need to sort out who's really interested and who's just looking. This is known as qualifying buyers and it's very important as you don't want to spend time and effort promoting your business to people unless they're really interested. A key element of qualifying buyers is finding out if they actually have the money to buy your business.
Tips for qualifying potential buyers
- Don't give out all the information about your business straight away. You don't want to waste your time or provide detailed information to parties who aren't serious.
- Inform them of a ballpark figure for your business, and then assess their reaction. This often eliminates people who simply aren't realistic about the price.
- Politely ask about their financial ability to acquire the business. Many people don't feel comfortable asking others these types of questions and this is where business brokers can help.
- Ask whether they have any experience in running or owning a business. Don't let this be the ultimate guide though, as they may be an investor looking to buy a business, intending to employ managers to attend to operations.
- Be aware that the desire to buy doesn't mean the ability to buy. Some genuinely interested buyers simply won't have the money.
Not many people feel comfortable with their ability to assess buyers, so using a business broker is often a good idea.