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While we have facilitated sales to investment groups and private equity, we most often work with a small ownership group (1-3 people) selling to another similarly-sized group. As such, we have learned about qualities that matter in buyers that sellers should be on the lookout for.
Start with Finances
1. Has Proof of Funds
Serious buyers don’t just talk a good financial game; they are able to back it up with bank statements, letters from financial institutions, or documentation of where their capital is. Serious buyers don’t get “offended” when asked for these things. They know it’s part of any real business transactions.
2. Proposes a Clear Deal Structure
There are as many ways to structure deals as there are buyers. Most of the time the SBA will be involved in the form of a loan. There may be an earnout. There may be some seller financing. But the deals that are most likely to reach closing, are the uncomplicated ones.
3. Is Creditworthy
Some buyers may have completed a business transaction before, but that’s not something we as advisors expect. Instead, we are looking at the financial past and present. Has the buyer ever struggled to meet financial obligations? What was the context?
Move on to Operations
4. Has Industry Experience
This is not crucial, and sometimes, we’ve even seen this be a hindrance, as a buyer can sometimes allow the “curse of knowledge” to prevent them from asking questions or be stubborn on an issue that requires a bit more flexibility and nuance. But, we often see that when someone has even a bit of industry experience that the transition goes that much smoother because of the shared knowledge foundation.
5. Has Leadership and Management Experience
Much more important than industry experience is leadership and management experience. Often, we are facilitating transactions from owner-operators to owner-operators, and that means dealing with vendors, employees, and customers. We’ve seen what can happen when someone has the money to buy a business but doesn’t have the leadership skills necessary, and it isn’t pretty.
6. Fits the Culture
When there are multiple offers on the table, we’ve often seen sellers make the decision to go with a particular buyer because “they get us.” Great sellers want to make the transaction seamless for all the stakeholders, and those who like and respect the existing culture will be great stewards and will earn the social capital to build on and mold that culture in the future.
7. Has a Realistic Transition Plan
If a business is solid, “don’t change a thing” is as good a plan as any. But often, the reason buyers buy a given business is because of opportunity. Maybe there’s a product or service that can be rolled out that, for whatever reason, never was. Maybe the social media presence is nonexistent, and even the slightest efforts there will yield great results. Maybe there are good opportunities to use technology and AI to make back-office operations smoother. The better and more realistic the transition plan, the better the buyer. The first 90 days matter the most.
Do you have a business you’d like to sell and want a buyer that fits this profile? We have many who might like to speak with you about your company. Reach out today.