Who's Buying Businesses?

This article is an attempt to “profile” some common characteristics of a business buyer.  This article is certainly not a scientific research study of the type of person that is buying businesses – it is merely based on some of our anecdotal observations that we thought would be interesting to share with you.  Let us know if you disagree?

Why people buy a business

- Early retirement
- Want to take control of their destiny
- Be their own boss
- Higher earning potential through business ownership
- Dissatisfied with a job
- Laid off
- Entrepreneurial nature

These are all valid reasons for buying a business.  Potential business buyers that approach our business brokerage usually don’t have a very specific type of business in mind when they contact us – many times they have not even considered a type of business until they have seen it.  This implies that business buyers are flexible with what they are willing to look at and what sort of companies they would consider buying.

We also observe that many buyers have cash resource of $100,000 or so to invest in buying a company.  Many times, these resources will be borrowed from a line of credit or friends and family.  Potential buyers often are unfamiliar with the process of the business sale transaction and have many questions about the process.  We also observe that many prospective business buyers can search for a business for a very long time and ultimately not purchase one.  They don’t find one not because there are no good business on the market – because there certainly are.  In the final analysis, buying a business takes a leap of faith.  Risks can certainly be mitigated but never eliminated 100% and this frightens many potential business investors.

What business buyers look for when evaluating a business for sale

If you are selling a business then this list should especially be of interest to you.  It is our anecdotal observations of some of the more common themes that arise when discussing a business for sale with a potential buyer.

- What are the annual sales of the business?  Are they increasing?
- What is the cashflow an owner can expect?
- What is the ratio of price to cashflow and how competitive is this?
- Will the current owner be willing to stay on after the sale for training?
- Distance and commute.  A buyer from Hamilton, Ontario may not consider a business in Toronto even if it is a 
  great fit in every other way.
- What upside opportunity is there to grow the business?
- How diversified is the business customer base?
- What shape are the financial statements in?  An ‘undeclared cash sales’ business is perceived as risky.

Overall, buying a business is an emotional purchase as much as it is a financial one.  Business buyers are looking for a business that fits with their skill-set, their level of available investment and the lifestyle choices they’re looking for.  They also need to feel good about the seller and have a level of trust that is established during the transaction.

If you are serious about selling your business please give some thought about how your business will be perceived through the eyes of a business purchaser.  Doing this and making changes where appropriate will certainly increase your chances of a successful business sale.