Who Really Shows Up When You Sell A Business?
Every buyer enters the process with a different lens. Some are chasing growth, others security, and others just care about the numbers. Understanding these motivations ahead of time puts you in a far stronger negotiating position. It can help you avoid surprises that can cause headaches and potentially derail a deal.
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Here’s a practical look at the most common buyer profiles you’re likely to encounter.
The Competitor
Your competitors are often the most obvious buyers. They already are aware of your market and your customers, and they have unique insights into the value of your business. In many cases, they can justify paying more because they see immediate upside, which includes increased market share and operational efficiencies, not to mention one less competitor out there for them.
That said, this buyer type requires caution. Confidentiality is critical, and you’ll want to be very careful about your discussions. When handled correctly, competitor buyers can move quickly and decisively because they “get it” from day one.
The Family Successor
Selling to a family member is less about discovery and more about transition. These buyers usually understand the business deeply. They may even have been preparing for ownership for years. Emotion, legacy, and continuity play a much bigger role here than in other deals.
However, readiness can be the disadvantage of this type of seller. Not every family member truly will have the chops to run your business. The issue could be anything from lack of capital to leadership skills. Clear expectations and structured financing are often key to making these deals work. You also will want to get a professional valuation in this scenario.
The International Buyer
Foreign buyers are increasingly active in many markets. These buyers are likely to bring strong financial positions and ambitions for growth. For them, buying an existing business can be the fastest way to enter a new country or industry.
However, these deals can be more complex. Regulatory approvals, licensing, immigration considerations, and communication barriers can all slow things down. Patience and expert guidance from attorneys and business brokerage professionals are essential.
The Financial Buyer
Private equity groups, investment firms, and other financial buyers tend to approach deals in a very regimented and less emotional manner. They are detail-oriented, and very focused on cash flow and their ROI.
These buyers can be demanding and methodical, but they’re also predictable. If your numbers are strong and your systems are solid, they can be excellent buyers.
The Synergistic Buyer
Synergistic buyers combine strategy and finance. They will be interested in your business if it complements their operations. This could be through everything from customers to products. They will purchase a business when they find the combined entity is worth more than the two businesses apart.
Because they see added value others may not, synergistic buyers are often willing to pay top dollar. These deals can be win-win when the fit is right. But, of course, their alignment on vision and plans for integration must be solid.
At the end of the day, no two buyers are the same. However, the more you understand buyer psychology upfront, the more control you will have over the process. Your Business Broker or M&A advisor will help you anticipate buyer behavior and manage your expectations. At the same time, they will be positioning your business to appeal to the right buyers, not just any buyer.
Copyright: Business Brokerage Press, Inc.
The post Who Really Shows Up When You Sell a Business? appeared first on Deal Studio.
How to Purchase A Business Without Collateral
Many prospective business owners believe that it is impossible to purchase a business without collateral. The simple fact is that banks do expect collateral when making a loan. Since this is the core reality of the business world, it means that many who are eager to own a business will ultimately not be able to acquire one. However, while it is true that banks want collateral for loans, there are some ways that would-be business owners can still progress towards their goal of owning a business. In this article, we will explore a couple of the ways that a prospective business owner can still succeed.
First, we must make a key distinction: there is a difference between not having collateral and having no funds whatsoever. It is key to note that the larger the business you plan to buy, the more money you will ultimately need.
A great place to begin the process of buying a business without collateral is to talk to the SBA. The SBA’s 7 (a) program offers up incentives to banks to make loans to potential buyers. The SBA’s 7 (a) program is a simply fantastic program for those without collateral, as the program will cover a whopping seventy-five percent of the loan amount; this means that you, as the business owner, only need to have twenty-five percent of the price of the business. As though this program was exciting enough, the SBA’s 7 (a) program also allows prospective buyers to use money from investors or gifts towards the needed funds. Thanks to this great SBA program, you may qualify for a collateral-free loan option.
A second option is seller financing. Seller financing is actually quite common in various forms. If you can find a motivated seller, such as one who is eager to retire, then seller financing becomes a potentially viable option. It may even be possible to combine seller financing with the SBA’s 7 (a) program for a powerful one-two punch. In this situation, a key part of the process is to find the right business and the right seller.
Working with a Business Broker or M&A Advisor can serve as a massive shortcut towards finding just such a business and seller. Brokerage professionals have databases of businesses for sale along with unique insights. A Business Broker or M&A Advisor may instantly know of a business that is a good fit for buyers without collateral.
Ultimately, prospective business owners shouldn’t be dissuaded by the challenges that a lack of collateral represents. It’s true that a lack of collateral is an obstacle, but it doesn’t have to be an insurmountable problem. By teaming with an experienced brokerage professional, it is possible to find a path towards owning a business even without having collateral.
Copyright: Business Brokerage Press, Inc.
The post How to Purchase a Business Without Collateral appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
How Changing Market Conditions Can Impact Your Business
Recently, the International Business Brokers Association (IBBA) released its Q2 survey report, The IBBA and M&A Source Market Pulse. This survey features feedback from an impressive 301 brokerage professionals across 44 states with 266 transactions taking place in the quarter. The report had numerous key findings that will be of interest to those looking to buy or sell a business.
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The Emergence of Covid-Proof Businesses
One key fact of interest is that a full 25% of businesses are still operating below capacity due to the pandemic’s enduring impact. The Market Pulse survey concluded that a quarter of all small and medium sized businesses are either in a position where they are temporarily closed or are operating below capacity. On the other side of the equation, the survey noted that 29% of businesses have either emerged as “Covid proof” or have actually benefited from the pandemic.
For sellers with Covid resistant businesses, now could be an excellent time to sell. For buyers, there are potential deals to be had, especially for those who are willing to look beyond the current pandemic fueled environment and towards the future.
Why are Sellers Selling?
The report also noted that burnout is a major factor impacting deal activity. Retirement continues to be the leading reason why businesses are selling, but burnout has become a quickly rising secondary reason.
The top five reasons that sellers are putting their business on the market are: retirement (35%), burnout (27%), health (15%), tax increases (7%) and general Covid fatigue (7%). The pandemic is still likely playing a role in the minds of many business owners who are looking to sell, which means that buyers could find good deals due to the pandemic. It is important for buyers to note that as pandemic conditions improve, many of today’s good deals will likely vanish.
While the IBBA and M&A Source Market Pulse report noted that over the last year it took longer for deals to close in most sections, there were exceptions to that rule. For example, in the $5 million to $50 million sector, there has actually been an acceleration. On average, deals in that range are taking a mere ten months to close.
Top Buyers in 5 Sectors
Sellers will be pleased to hear that the report concludes that buyers are indeed active, noting that in the Main Street market, personal services were trending. In the lower middle market, it was manufacturing and construction/engineering that dominated industry transactions.
The top buyers in the $0 to $500,000 sector were first time buyers (39%), in the $500K to $1MM range, the top buyers were first time buyers (37%), and in the $1MM to $2MM range, entrepreneurs (29%) lead the way. For the $2MM to $5MM range, it was first time buyers (36%) and serial entrepreneurs (28%) who led the way. For the $5MM to $50MM range, PE firms seeking a platform deal (33%) were the most represented group of buyers. It is interesting to note that with the exception of the $5MM to $50MM range, first time buyers topped the list.
Buyers and sellers will be pleased to learn that the IBBA and M&A Source Market Pulse report clearly outlines just how much the climate has changed from 2020 to 2021. Today’s market conditions are different than they were a year ago. If you’re looking to purchase a business, you can still find great deals. Those looking to sell should find increased interest from an array of buyers, especially first-time buyers.
Copyright: Business Brokerage Press, Inc.
The post How Changing Market Conditions Can Impact Your Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The Top 2 Ways to Purchase a Business without Collateral
Banks love collateral and for a very simple reason. If you have collateral, then the bank has something it can take if you fail to repay your loan. At its heart, collateral is a remarkably simple concept. However, unfortunately, many people who want to start a business lack it. All of this leads us to the simple question, “Can I start a business without a collateral.
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1. Try the SBA
There are ways that you can start a business without collateral, but you will need some amount of money. The larger the business, obviously the more money you’ll need. Those interested in the zero collateral route will want to take a look at the SBA’s 7 (a) program. This program incentivizes banks to make loans to prospective buyers. Through this program, the SBA guarantees an impressive 75% of the loan amount.
Of course, the buyer still has to put up 25% of the money in order to buy the business, but for those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option. Perhaps best of all, the cash buyers used can come from investors or even a gift, helping to make this program a potentially great one for first time business owners.
2. Think about Seller Financing
Another option is seller financing. Sellers frequently get involved in financing. When a seller is motivated to sell, due to retirement or some other factor, things can get interesting. Most sellers do agree to offer some degree of financing, so asking for selling financing is not unheard of or insulting to a business owner. Prospective business owners may even be able to combine seller financing with the SBA’s 7 (a) program. Correctly used, this path could provide a powerful and useful option.
Speaking of retiring, according to The International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 33% of deals now take place when owners are retiring. This clearly demonstrates how it is in the best interest of many sellers to consider seller financing.
While the SBA’s 7 (a) program is potentially very useful to buyers, it is important to note that under the program, the seller cannot receive any payments for two years. Working around this potential problem may very well require some creativity and effort on the part of the prospective buyer. In the end, it may be necessary to offer the business owner some incentive in order to justify waiting two years for his or her money.
Attempting to buy a business without collateral may, at first, sound like too large of an obstacle to overcome. However, these kinds of purchases really do happen all the time. By staying focused, persistent and understanding your options, you will increase your odds of success. Finally, get as much professional help as possible. Prospective business owners should consult with S.C.O.R.E., experienced business brokers and others to learn the best way to buy a business without collateral.
Copyright: Business Brokerage Press, Inc.
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