How to Sell My Business: Finding the Right Buyer

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Be warned: you can waste significant amounts of time and money getting distracted by the wrong prospects.

Beware tyre kickers, bargain hunters and general time-wasters when you’ve decided "I want to sell my business". Don't be afraid to ask for financial information or do background, credit and company checks.

A serious buyer won’t mind. Make sure the buyer has the means and motivation to make a purchase. Use a reputable business broker who will be able to check the buyer’s credentials thoroughly for you as part of their service.

But Andrew Rogerson, owner and MD of Rogerson Business Services in Sacramento, says it’s difficult to ever be 100% sure on the credibility of a buyer.

“Trust is built over time and it really comes from experience. That’s one of the reasons for having a business broker in the transaction: we know what to disclose at which point in the transaction.

“If a buyer asks for a document, for example a lot of buyers want tax returns upfront. One of my processes is to make sure a buyer is qualified to buy the business.

“I go through some questions with the buyer and I’ll reveal information that’s appropriate. There are some things that don’t get disclosed until later on in the transaction.”

You can secure the best deals when a buyer has a real motivation to buy, such as when they will be gaining skilled staff, a proprietary product, a new geographic location/sales territory or lucrative contracts. Strategic buyers are driven by more than just profitability, which usually means they can offer better value for the business.

Synergies

A buyer who already owns a business in the same sector, or to which the acquisition can add value, may be prepared to pay over and above the market rate. Not only are they more likely to have the capital, but your business will bestow potential synergies and economies of scale to their existing business.

No surprise then that, where appropriate, business brokers often try to target these kinds of buyers.

There are a number of ways in which a business acquisition can augment the operations of an existing business to make cost savings to enhance their product or service.

For example, a distributor might buy another distribution business because it has warehouses and other facilities in coastal positions near key ports, giving it greater scope for overseas distribution. Or an internet business might buy another dotcom because it has vastly superior coding expertise.

It doesn’t have to be in the same sector. The owner of a manufacturer might want to take ownership of his distribution and buy a distributor for instance. Or the proprietor of a tourist attraction might buy a café adjacent to his or her business to feed his customers and add another revenue stream.

All-cash deals

Some buyers are naturally suspicious of sellers who demand total cash settlement. What is being hidden?

How much faith does the vendor have in his or her business if they’re not prepared to make some of the purchase price contingent on future performance? With credit still hard to obtain, some form of seller financing – where the buyer pays a proportion of the asking price as and when particular milestones are hit –  is increasingly common, and indeed essential to close a deal.

Buyers may pay a substantial premium for an element of seller financing. Keep an open mind and you might get a better deal.

Obviously getting cash up front is ideal. But buyers with the capacity to pay the entire asking price up front, aware of the strength of their position in a credit-starved, depressed sector, may well play hardball in pursuit of a bargain.

Read Common Questions When I Sell My Business