Who is the Right Buyer for Your Business?
How do you know who is the right buyer? There is no surefire way to tell. The best way is to remember what your goals are in selling your business and trying to find someone that fits that mold. These goals may not be everyone’s goals‚ but generally speaking‚ the motivations in selling your business are the same.
Goal #1 – Maximizing profits on your sale – this seems pretty obvious but important to keep in mind when selling your business.
Objective: Finding a buyer that has the resources to pay you for your business. This means that the buyer will not have to rely on third-party financing or seller financing to complete the transaction. An all cash buyer would be best.
Goal #2 – Ensuring that the closing happens – from the day the broker agreement is signed until the day of closing‚ there are many factors that will be involved that may jeopardize the closing from taking place. Eliminating or reducing contingencies in the contract will increase the probability that the closing will take place.
Objective: Finding a buyer who will not rely on contract contingencies. There are many types of contract contingencies that are present in a transaction. For example‚ if the buyer is relying on obtaining outside financing and the bank rejects the buyer’s loan application‚ the buyer will be able to get out of the contract and you will have to return the contract deposit the buyer provided. Finding a buyer who will not rely on outside financing will increase the odds of you selling your business.
Goal #3 – Getting to closing quickly – not only do you want to close the deal‚ you want to close it in a timely manner.
Objective: Finding a buyer who is willing to reduce the time requirements in the contract. Your contract will have certain time limitations for certain things such as obtaining a loan or completing due diligence. Limiting the time a buyer needs to complete these tasks will lead to a quicker closing.
Goal #4 – Security after closing – if you are providing financing to the buyer of your business‚ it is imperative that you have the ability to collect on your note in the event the buyer fails to pay you back.
Objective: Finding a buyer who has property you can use as collateral for your financing. There are many assets you can use as collateral including real property‚ equipment and the stock of the business itself.
Goal #5 – Avoiding problems after closing – you are selling your business to remove yourself from the business. When possible‚ you want to ensure that you will not get a telephone call six months from the closing date where the buyer tells you that he could not handle the business and he wants to sell it to a third-party. It would be fine if you did not provide any financing or do not have any further ties to the lease‚ but often‚ that is not a luxury many sellers have.
Objective: Finding a buyer who is an experienced business person‚ preferably a person that has successfully managed a business similar to yours. Selling your business to an inexperienced person who has some money to “invest” will ultimately result in your involvement back in the business. This should be avoided when possible.
Trust Your Gut
It is amazing how many business sellers I represent are able to tell at the outset how successful a buyer will be or how quickly they will go out of business. Each business requires a different attitude and a certain personality to run. This instinct comes from the years that you have put into the business and knowing how the day-to-day operations work. Having the insight to determine who will or won’t be successful is critical when choosing a buyer for your business. Remember‚ in most instances‚ you will still have some stake in how the business runs after the closing. There are situations where you will be better off on passing on a certain buyer‚ even if that means that it will take more time to sell your business or even if you have to accept a lower sale price for a better buyer. The “quality” of your business buyer will play a large role in your peace of mind.
For additional information on selling your business‚ give us a call at (800) 976-4904 or contact us here.
By Brian Lincer March 20, 2014
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