Understanding the buyer pool for your business: PART ONE

Understanding the buyer pool for your business is very important, as it can save time and money.  

The buyer pool for a business is determined by ‘the business’ that is for sale, i.e. its asking price, the industry it operates in, owner involvement levels and/or the owners skill requirements.

The price of a business will define what level of buyer will be looking at your business. Remember that there are always more buyers at the lower levels in a buyer pool. Sometimes sellers may just price their business too far away from the buyers. That is, if you have a business listed for say 160k and your broker has appraised it at 95k, and you privately think you would take 85k, then the longer it stays up at 160k and is not sold the lower the perceived value of the business will be, as buyers clearly have not seen value for your business at that level.

In other words, if buyers are looking at buying businesses for around 80-100k, they will naturally do searches on the internet around that level and are not looking at a business at 160k, even though you will take 85k. If the buyers are looking in 150-170k range and are educated on what they can get from a business in this price range (profit and asset wise) and yours doesn’t stack up then they will quickly discount yours out of their decision set and move on, as it does not have the same perceived value as the other businesses for sale in that price range.

Price positioning is important, however the industry can also determine the buyer pool of a business as well, as some industries are more attractive than others. Things to consider are, how easy is it for a buyer of your business to sell it again in 3-5 years’ time?  Is the industry in a growth phase or in the decline phase of its lifecycle?  Is it in an industry that is attractive to acquisition by competitors, or one that is attractive to closely related industries or businesses to enter?  Can the industry be entered by anyone or do you need previous experience or qualification to be successful?

For more details on the above, a business assessment and action plan for selling your business, call me or one of my team for a business assessment today.