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Tips for dealing with prospective buyers

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When selling your business you may think that simply finding an interested buyer is your main concern – but this isn’t the case.

Getting an expert valuation, preparing your business and getting ready for due diligence are all key elements in the process. 

In addition, understanding the person who is buying your business and their motivations for doing so, will be crucial to negotiating a successful sale. 

Here are some tips on the types of buyers you will come across and how to identify a timewaster:

Identifying the type of buyer you want

Your potential buyer will usually be one of three kinds: The strategic investor, the operator, or the financial buyer. 

Each type of buyer views your business in different ways and assigns value according to their estimates on earnings, growth and potential. 

The strategic buyer 

These are usually larger companies running a business within your market and intend to expand by buying competitors or other large players. 

If you have decided that the strategic buyer would be the ideal candidate to take over your business, there are some important things you will need to consider.

Firstly, this is on the whole business merger. This means cutbacks may be eminent. So, how would you feel about some of your employees being let go once you leave? Would you need to include this in your contracts?

A strategic buyer can occasionally have the sole intention of simply removing their competition. Some larger businesses will purchase smaller companies for this reason.

It’s is always worth taking note of how a potential buyer views your business; the types of questions they ask and what aspects of the business they are interested in can offer real insight into their plans and overall perspective of the business.

Should they not have your business’s best interests at heart, they may not ask about your sales, the state of the business or its future potential.

Financial buyers

These are mainly professional investors like those investing in hedge funds, private equity firms, and investment partnerships. 

A financial buyer will usually finance the purchase of your business with a loan, which can mean that the selling process will take longer.

Such buyers focus on the cash flow and hidden value that your business offers. As such, they will want to purchase your business at a low price and run the company for a few years with the intention of selling it in the near future. 

In this case, a financial buyer will only be interested in your numbers rather than the operations and will have little interest in anything else.

Should you want your business to go to a loving family as a lifestyle business or to continue to be a part of your local community, this kind of buyer wouldn’t be the right fit.

Operator buyers 

These buyers intend to purchase a business to enjoy a good income, independence and comfortable lifestyle - among other perks that come with running the business.

There are many reasons to be wary of operator buyers who show an interest in your business. These can be the most common form of timewasters.

Some warning signs that you might be dealing with a timewaster can include:
- Unable to answer questions on their finances
- Does not offer much information on their background or keeps it very vague
- Does not ask about the financial state of your business for sale
- Attempts to haggle down your valuation based on small, inessential issues such as a light bulb out. 

Should someone like this walk through your door, don’t be afraid to do your own due diligence on the buyer. An inability to answer questions on their own professional situation should ring alarm bells and offer a sign that this buyer isn’t very serious about the business.

Qualify Potential Buyers 

By now, you have found some potential buyers for your business and you need to vet or qualify them. 

So, check their financial arrangements (again) to determine if they are prepared for the purchase.

A serious buyer should have no trouble signing a confidentiality agreement, which will rule out any suspicions you might have of them either being a tyre kicker, or a competitor scouting your business for intel. This will then mean that they can carry out their in-depth due diligence, give you a realistic offer for your business and you will then be able to move forward and complete the sale.
By Jo Thornley, Head of Brand and Partnerships at Dynamis. 
Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between, and and likeminded companies.