Business Succession or Exit

Who will pay more for your business? The two types of business buyer

[blog]who-will-pay-more-for-your-business
Ever wondered who will buy your business, which ones will pay more, and then where to find them?

In this article I will introduce the two types of business buyer. You’ll learn what motivates them, and which of the two types will pay more … orders of magnitude more. But of course to attract and present an irresistible offer to the buyer who pays more, you’ll need to have the right kind of business.

So let’s get started so you can identify the type of buyer you’ll ultimately attract.

The two types of business buyer: Financial buyers & strategic buyers.

The two types of business buyer defined:

  • Financial Buyers – A financial buyer generates a return on their investment by continuing the business and/or by generating additional gains by improving or enhancing the current business.
  • Strategic Buyers – A strategic buyer leverages the acquisition to create significant gains in their own business in some combination with the new acquisition.

(inspired by the work of Tom McKasKill)

In a financial sale the value is created through its inherent profitability.

Anyone who has sold a business through a business broker will know the broker will generally position the business for a financial buyer (because they don’t know your business or its hidden value). The big downside is; a financial buyer places less strategic value in your business, pushing down the offer he/she makes.

In a strategic sale the value is created through its ability to leverage your business into their business.

Because the strategic buyer can leverage your business into their business, thereby creating a bigger upside opportunity, they will often pay more for your business.

For example a pool manufacturing business buys a pool chemical company. They can immediately sell more chemical to their existing pool customers as opposed to someone else’s. The pool chemical business unit can also promote pools to its customer base. This strategic sale would generate much more profit than a financial purchaser who acquires for profit and doesn’t have the leverage as the strategic buyer.

Of the two types of buyer, a strategic buyer is the ultimate kind of buyer if you want a greater return on your business asset. However, not all businesses will realistically seize the interest of strategic buyer. So to better understand who your business will attract, I’ve included a few key points.

You will be looking for a financial buyer for your business if:

  • Your business/product has low strategic value
  • It has a low competitive advantage
  • There are many similar businesses to yours
  • Buyer will buy to consolidate or run as it is
  • If business/product offers little in synergy to buyer

It makes sense to be looking for a strategic buyer if:

  • Your business/product has high strategic value
  • It has considerable competitive advantage
  • It is unique, hard to copy or extensive intellectual capital or IP
  • Your underlying assets of competencies can be leveraged by a larger corporation

Looking to set your own business up for an exit via sale?

Business Growth Leaders work with business owners like you to maximise the value of your business asset.

Our organisation works with you to reduce business risk, thereby making your business more valuable to prospective purchasers. Ideally we work with you and your team using a coaching format designed to achieve a more profitable, stable business that gives you options for your future, as well as the businesses.

Our clients have found the coaching process to work well in that it allows for the longer term development of the business. For many business owners we have worked with, they like the results of building a profitable business while working less; placing them in a strong position to keep or sell the business.

For more information, contact our office and an accredited coach will show you how coaching can work for you.

Disclaimer: We are not business brokers, real estate agents or seeking a listing of any type. We work with business owners to maximise the value of their business asset.

Similar Posts