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Who are the potential buyers for my business?

John Mickelson, managing partner Midwest Growth Partners, is IowaBiz's blogger on succession planning. Read more about him here. 

Selling your business can be a full-time job in addition to your full-time job of running your business. Before the sale process begins, it is helpful to understand what kinds of buyers there are and the pros and cons of each.

In all circumstances, you should pre-qualify buyers to ensure they have actual capital before spending any time with them. Many will say they do, but do not.

Based upon all of this, you may target or avoid certain buyers. Over the next few weeks we look in depth at different types of buyers. Today we have the most obvious – your family!

Family

A family member may be interested in continuing your legacy by buying and operating your company. When this works out, it is often the best solution as company heritage will remain and the transaction structure and timing can be extremely flexible.

For these reasons, a business owner may be willing to exchange getting a “top dollar” value for their business from someone outside the family.

However, when things do not work out…look out!

Thanksgiving dinner can get awkward when siblings feel treated unfairly because of a sale. A son or a daughter may also feel like they have to buy/run the business and not pursue their own interests, which can create resentment. In-laws happen and divorces of children can happen.

Perhaps worst of all, because structures can be so flexible to accommodate the sale, the business owner may not fully financially “de-risk” because of seller-notes used to finance the purchase. This puts them in the precarious position of exiting the operational side of the business, but having their nest egg still in the business. 

One possible solution for this problem is to have a private equity fund financially back your family member. This gets liquidity to the business owner and gets ownership and operational control to the family member.

Next blog we will learn about other types of buyers: “strategics” and “financials”.

 

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