When it comes to selling your business-- Not all buyers are the same.

Are you thinking about selling your business? Odds are you don’t know the potential buyers.  In this post we’ll tell you about the different types of buyers you might encounter on your way to successfully selling your business.

There are numerous types of buyers to whom a business could be sold.  Your options are often limited by the nature of your business. The industry, the company's size and profitability, the number of employees, whether you have family involved in the business, or whether you have co-owners are all factors that can have a bearing on the sale. Determining the type of buyer you want to sell your business to is one of the first steps to planning your business exit.

So, let’s take a look at different kinds of buyers.

Co-Owners: If you own a business in conjunction with others, it's a good idea to have a buy-sell agreement that details the expectations of what occurs when one of the owner’s desires to exit the business. There are disadvantages to selling to a co-owner. You may not receive full market value and you may not "cash-out" immediately. Because of the level of trust with your co-owners, sometimes the need to involve professional advisors in completing a transaction is overlooked. That is a mistake. Always utilize professional advisors; they can provide necessary objectivity as well as the required expertise.

Family Members: Ownership transfers to family members frequently occur at less than fair market value and retiring owners often find themselves financing a major portion of the transaction. You need to have confidence in the family member who is taking control has the ability to maintain your success. Transferring the business to a family member is not without its dangers, and again we recommend the involvement of professional advisors.

Employees: A key employee (or employees) capable of buying and running the business can be a viable option.  If the employee can handle a cash investment of about 25% of the purchase price, the transaction qualify for financing through a Small Business Administration (SBA) lender. Failure to negotiate a successful transaction with an employee is always a possibility and with that failure comes a myriad of potential issues. Unless you have a high confidence level in your ability to conclude a successful negotiation with an employee, the risks may outweigh the rewards.

Employee Stock Ownership Plan (ESOP): Although there are no specific size requirements as to employees or revenues, many advisors suggest $5,000,000 in sales and 50 employees as the minimum size to be able to sustain the costs of an ESOP.  However, other advisors suggest ESOPs might work for companies with as few as 15 employees. To learn more, talk with professional advisors specializing in ESOPs.

Individual Buyers: Most small businesses (valuations below $3,000,000) that are saleable (and are not sold to co-owners or employees) will be sold to individual buyers. 

Middle Market Buyers: Private businesses with valuations above $5,000,000 are likely to be acquired by larger corporations for strategic reasons. Middle market businesses can also be likely targets of private equity groups.

Customers, Suppliers or Competitors: It’s possible that interest in the business can come from a customer, supplier, or even a competitor.  Each of these possible buyers presents it’s own challenges and opportunities – and possible scenarios should be reviewed with a business sales professional.

Determining the type of buyer to whom you desire to sell your business is one of the first steps to planning your business exit. To achieve your goals, planning at least three to five years in advance is recommended. However, it is never too early – or too late – to start.