Retirement and Transition Plans

How to find a buyer when selling your business

Implement these five tips to help you find the right buyer when it's time to sell your business.

Selling your business can be complicated and time-consuming as you seek the right buyer. Consider these tips to help the sale go smoothly.

Market your business.

Leveraging your network is an effective, inexpensive way to let people know you're considering selling your business. Spread the word at industry events and tell your local banker and chamber of commerce.

Understand buyer motives.

The two types of buyers are financial and strategic. Financial buyers are interested in the potential profit they can realize from buying and operating a business. Their goal is to invest in a company, receive a return, and often sell for a profit. They usually retain the existing staff, and the previous owner can remain involved in his or her business after the sale.

Strategic buyers, on the other hand, look for companies that fit their business plans. This type of buyer might be part of the industry and looking to grow and diversify in the market. Strategic buyers are more likely to reorganize or dismiss current employees.

Narrow the buyer pool.  

Determine if a buyer is financially capable. Steve McConley, managing director of Wells Fargo Advisors M&A Advisory Services, suggests being wary of buyers who want the seller to finance the deal. "If the buyer doesn't have to bring a checkbook to the table, that makes me really question whether or not this is a good economic deal for me as a seller," he says.

Sellers should also consider what will become of their business if they sell: What do you want to happen to your employees and customers? Will this buyer help your company succeed? "I think those qualitative things are as important as the quantitative things in determining a good transaction," says McConley. 

Know when to use an intermediary.

A business broker is an intermediary who lists smaller companies for sale and sets prices for those companies. This is unlike an investment banker who lets the market define the price of a company via an auction process. Also, brokers tend to work on smaller deals with a focus on a certain local market or industry, whereas investment bankers work on larger deals, often starting around $10 million of enterprise value. Brokers market your business to find qualified buyers and charge a percentage — typically up to about 10% — of the final sale price.

"What drives the value of the company is its profitability," says McConley. Use the historical growth of your company to make a realistic estimate of future profits and set your price expectations accordingly. Consider a broker especially if you can't identify a buyer within your immediate circle. McConley says brokers can be better equipped to connect with potential buyers in different regions or industries.

If you are a member of a trade association, use that as a resource to find an intermediary that knows your industry. "You need to make sure that you work well with that person, that they understand what you're trying to accomplish, and that they have your best interests at heart," says McConley.

Start early.

The sooner you cultivate leads, the easier the sale process will be. McConley advises owners to be receptive of inquiries from potential buyers even before owners are ready to sell. Keep a file of anyone who has inquired so when the time comes to sell, you'll already have a list of potential buyers. Having a fan of your company within a potential buyer increases the chances of them actually buying your company.