Friday, 24 August 2012

What's Worse Than No Buyers? Just One!

Don’t fall into the trap of focusing all your efforts on a single buyer for your business--no matter how attractive they may seem

Finding buyers for an existing business can be a frustrating and time consuming process. Communicating that your business is for sale to the largest audience possible is the only way to maximize value, yet openly advertising it can be disastrous.  The possible ramifications of a concerned employees, customer, competitors and vendors can dramatically affect moral, hurt sales, increase direct competition and upset key relationships.

As with any kind of marketing, you need to understand their target market. Business sellers are no different, they need to identify the potential buyers of their company in order to effectively promote it.

The largest group of potential buyers are your competitors, suppliers and customers. Although there are risks associated with divulging proprietary information to them and word getting out that you are looking to sell, this group--if handled appropriately--can represent an attractive prospect list. Most often, this group understands the intricacies of the industry and can relate to the opportunities and threats that exist today. 

Competitors and suppliers, in particular, often have duplicate processes and functions that can be eliminated, adding additional benefit during the transition to new ownership.  A recent merger saw the purchaser implementing many human resource procedures into his existing company that he found in place at the business they just bought. In this case, the buyer was able to save on duplication of departments and add additional savings.  The additional added value to the buyer helps improve marketability to the seller, making these prospects very attractive.

Another potential group of buyers are strategic acquirers. Not to be confused with competitors, these are buyers who may be interested in the synergies created when integrating another company into their existing company.   For example, a similar business operating in a different market may be interested in expanding into a new regional market. Or, it may be interested in a business’s distribution channels, technology, or products, which would strengthen its existing infrastructure or product offering. 

Employees are another group of potential business buyers. Selling to an existing manager or to staff through employee stock-ownership plans can sometimes be beneficial but if the deal falls through, hard feelings and a stressed working environment can be the result. A careful inquiry and deployment of information is advisable for this group to determine if a viable conclusion is possible. Remember, regardless of motivation, buyers need some level of financial wherewithal to buy a business.  Proceed with caution if you are not confident they have the financial ability to step-up.

Investors and career changers are another significant pool of buyers.  Many investors have realized that as a business owner, the return on their investments can be significantly greater when successfully operating their own company versus the volatility of the stock market. Career changers, typically managers and seasoned executives and executives who have taken early retirement packages, see similar advantages of being in business for themselves.

Investors and career changers have certain traits that should not go overlooked. They typically have a strong business background and a real entrepreneurial spirit. Often the one trait that is usually not present is a specific knowledge of the business they are buying. 

This usually comes as a big surprise to many sellers. Many owners believe that there is no one who can run their business like they can. While they rightfully should be proud of their experience, a new owner brings a fresh set of competencies to the business, which can complement what’s already there.

One of my favourite examples is the junior executive with an international industrial company who had strong management and communication skills who ended up buying a flower business.   The other is a lawyer who had excellent negotiation and marketing skills that ended up purchasing a subcontracting business.  Even though these two buyers lacked specific in-depth technical knowledge of the business they bought, both found success in unlikely businesses.

Attracting a variety of buyers to a business acquisition is at the heart of maximizing value to the seller. Just like you wouldn’t market your house to one person, the same principles can be applied to a business transaction. If a buyer knows they are the sole interested party, they can control negotiations. Increasing buyer competition is the main reason why sellers turn to a professional business broker when deciding to sell. Business brokers have the know-how to generate more leads through their own database of buyers, other brokers and advisors; they broaden the pool of potential buyers through advertising and promotion; and they can approach competitors and suppliers carefully to preserve confidentiality.  By allowing a skilled broker to confidentially guide sellers through the sales transaction step by step, owners will protect their sale value and remain focused on their job, making their business as profitable as possible.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


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