Two Types of Buyers And Why You Need to Prepare for Both
Whether you aim to sell your business next year or a decade from now, you need to consider and prepare for two primary types of buyers: Financial and strategic buyers.
The Financial Buyer
Financial buyers are interested in the future profit stream of your business. The more profitable it is expected to be, the more valuable it becomes in their eyes. To attract a financial buyer, focus on strategies like:
- De-risking your business: Minimize dependencies on key customers or suppliers.
- Creating recurring revenue streams: Subscriptions or repeat customers increase reliability.
- Cultivating a leadership team: A strong team reduces reliance on you as the owner.
The Strategic Buyer
Strategic buyers, typically larger companies, care more about how your business can enhance their existing operations. They evaluate your business based on how much more of their product or service they can sell by owning your company. This often means they are willing to pay a premium, potentially more than a financial buyer.
Preparing for Every Eventuality
So, why bother making your business attractive to a financial buyer when strategic buyers might pay more? The reality is that strategic acquisitions are rare. Each industry has only a few potential strategic acquirers, and their interest can be influenced by numerous factors outside your control, such as:
- Economic conditions
- Interest rates
- Competitive landscape
Think of it like preparing a promising young athlete for life beyond sports. While aiming for a professional career is admirable, having a backup plan is essential, ensuring a focus on education. In business, while a strategic sale might be the dream, positioning your company for a financial sale is a prudent move. Financial buyers seek businesses that have done their homework—the ones that are reliable and profitable.
Conclusion
In the end, preparing for both types of buyers maximizes your chances of a successful sale. By making your business attractive to financial buyers, you ensure a strong foundation, making it a reliable cash machine. This enhances company value and prepares you for the rare opportunity of a strategic buyout, ensuring you’re ready for any eventuality.
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