About Individual Buyers
In the last issue (#19), we covered the various Types of Buyers. This issue provides information About Individual Buyers.
" All our dreams can come true, if we have the courage to pursue them." Walt Disney
About Individual Buyers
After your business is on the market, your broker will handle inquiries from all types of individual buyers. Statistics indicate approximately 90% of people who inquire about a business never buy one.
There is an unlimited supply of "tire kickers"
Sources of “tire kickers” are endless but can include those without sufficient funds to acquire your business; those incapable of running your business; those in your industry such as competitors, customers or suppliers who are trying to figure out what is for sale; and those with unrealistic price expectations, including “bottom fishers” and “sharks.”
The unlimited supply of “tire kickers” is one of many reasons that you should engage a business broker to sell your business as opposed to trying to sell it yourself.
There is no need to expose the confidential information of your business to “tire kickers.” The broker should qualify buyers, not release confidential company information to those unqualified, and preclude you from dealing with those who are not good candidates.
First-time buyers
Most inquiries received by brokers from individuals are from first-time buyers. As a result, many have very little knowledge about the business acquisition process, how businesses are priced or what their expectations should be. Business brokers spend a lot of time educating first-time buyers and many lose interest once their expectations are adjusted to reality. About 90% don’t really know exactly what they want and only a very few buy the business they first inquired about.
Income-replacement buyers
For a variety of reasons (layoffs, corporate downsizing, burn-out, job relocation, etc.), many potential buyers are exploring buying a business to replace the income from their job. Often those buyers lose interest after they gain a better understanding of the required investment, the amount of work required and the risks associated with a business acquisition. They quickly (or ultimately) decide to continue working as employees of others.
Mid-level executive buyers (from the corporate world)
What about the 10% that are not “tire kickers”? What are their profiles? Although there is no such thing as a typical buyer, one group of legitimate buyers are mid-level executives from the corporate world who have entrepreneurial dreams and have saved just enough (typically about 25% of the purchase price is required to qualify for SBA financing) to afford a business that can replace their current employment income.
Many have general management, marketing, sales, financial or engineering backgrounds with supervisory experience, and they may be responsible for big budgets. But most have not previously owned a business nor fully understand that the typical small business owner is both the President and “chief cook and bottle washer.” That’s the good news and the bad news. If they can adjust to the “chief cook and bottle washer” role, they may also have the management experience to take the business to the next level. And that is usually their dream. They are leaving the corporate world in search of the ability to control their own destiny and build equity in the business. And it is usually a very scary and big step for them; sometimes it can be difficult for them to make the last leap of faith that’s required to get a deal closed.
First-time buyers are squeamish
It’s hardly ever an easy process to get the individual first-time buyer through an acquisition. That’s why it is so important that obstacles to a successful sale of your business have been identified and resolved, or disclosed early on. Even the most confident of buyers are squeamish and may bail out unnecessarily when difficulties are encountered.
The serial entrepreneur
Another type of buyer is the former business owner – an entrepreneur who has done it before and is interested in doing it again. Having been through it before, they can typically reach a decision sooner than a first-time buyer and the whole process has the potential to be more efficient. But this type of buyer may be a lot tougher negotiator and it may be much more difficult to reach a mutually beneficial agreement.
Other types of buyers
Corporate executives and former business owners are only two of the various types of buyers you may see. Depending on the nature of your business, other examples might include: two or more partners combining their resources to pursue an acquisition; husband and wife teams looking for a business venture; wealthy individuals looking for a passive investment; a “provider” spouse looking to put their spouse into business; a parent looking to acquire a business for their child to run; an individual backed by a wealthy investor looking for an acquisition; etc.
Individual buyers come in all shapes and sizes with all kinds of backgrounds, life stories and motivations. The one thing they all have in common is …..
