Most business owners only experience selling their business once in a lifetime. One of the hardest elements of this process is choosing a buyer. There is more than just price to consider.
One starting point is to decide if you want an insider or an outsider to buy your business. An insider could be a family member or member of your management team. This type of buyer can often support a simpler due diligence process because of the individual’s familiarity with the business. However, an inside buyer may lack the financial resources to meet your valuation goals. Also, you may need to serve as the bank and receive your purchase price over time in the form of a seller note. Another consideration is the ongoing relationship you will have with this individual if the deal falls apart.
An outside buyer will have to learn about your business in a short amount of time. They will bring in a team of diligence partners to help get that work done. This process and level of inquiry can be a lot for a small business to manage. However, these buyers often have experience closing deals and substantial capital to meet your valuation goals.
Outside buyers will either be participating in your industry already (strategic buyers) or buying your business on a stand-alone or platform business. Each of these can be attractive solutions depending on your personal goals.
Are you looking to quickly ride off into the sunset without a long transition period? Do you find the task of running your business to be overwhelming where you might prefer to only focus on engineering or sales? If the answer is yes to either question, a strategic buyer may be right for you. Strategic buyers can be larger competitors of yours and often are the existing portfolio companies of private equity firms.
Do you bristle at the idea of another name being on the outside of your business? Do you worry about how your staff or people in the community will react if your business is relocated as part of a bigger enterprise? If so, you may be better off seeking a buyer who will pursue your business as a platform investment.
Take time to get to know the prospective buyers you are considering. Call their references and ask your trusted advisers for their reputation in the market. Don’t be afraid to ask them questions to directly to inform your own opinion.
This is not an exhaustive list of potential buyers but does highlight how different buyers bring forth certain risk and opportunities. Additionally, some may be a better fit for your specific goals. Be honest with yourself in what you want to accomplish and that will serve as a good guiding light. Also, remember that each prospective buyer will have its own culture and style, so take time to find the one that best matches what you want your legacy to be.
Remember that regardless of who the buyer is, there will be changes and that may be hard for you. A perfect buyer does not exist. Don’t fret over finding one. Instead, focus on defining your goals and determining who is best able to meet them. ●
Corrie Menary is a Partner at Kirtland Capital Partners
