Who Are The Potential Buyers Of Your Business?

ARE YOU THINKING ABOUT THE SALE OF YOUR BUSINESS?

An interesting phenomenon is happening currently as the talk about increasing capital gains tax continues to swirl.  Lots of business owners are all of a sudden considering selling their business sooner rather than later to avoid a heavier tax burden.  In reality, with sufficient planning and discussion, they may have been able to find a selling option that, through the normal course, resulted in less taxation anyway.  One such option is an ESOP – an Employee Stock Ownership Plan. An ESOP is not for everyone, and can be rather complicated, but the tax advantages can also be significant.  It would be wise to talk to your advisor before pursuing this option.

My point is that, as a business owner, you should be planning for the transfer of your business and thinking about how best to position it for sale many years before you expect it to happen. By doing so, you will create a much larger universe of options.

Here I discuss #2 of my five things to consider when selling your business, which I posted about a few weeks ago.

👉 DO YOU KNOW WHO WILL BUY YOUR BUSINESS?

Knowing who your potential buyers might be is important for several reasons, not least of which is that you need to focus on what might be important to them and what motivates them.

Buyers may be external, perhaps a strategic buyer such as a competitor, customer, supplier or investor,  or they may be financial, such as a private equity organization or other financial buyer.  Alternatively, the buyer may be “internal”, such as a member of the management team, a family member, or the employees.

Each of these buyers will have their own objectives and will look at your business through their own lens:

👉 Where are the possible synergies with the buyer’s business?

👉 Does the buyer wish to retain employees?  All of them, none of them, or just some of the key employees?

👉 Is the buyer looking for a “bargain” which they can then improve with their own team and sell on for a profit?

👉 Is there enough cash-flow for the buyer to fund future obligations?

Just as you can be sure that any of your buyers will conduct “due diligence” as a way to evaluate your business, a process that is inevitably more cumbersome and demanding than most buyers expect, it is equally true that you need to conduct due diligence on your buyers.  What are they looking to accomplish? What are their motivations? Where are they going to focus?  What do they consider important? Understanding and being prepared for these questions puts you in a better negotiating position than you might otherwise have been in.

WHO ARE THE POTENTIAL BUYERS OF YOUR BUSINESS ❓❓❓