What Are Buyers Looking for Before Buying a Business?

Posted by on May 24, 2013

buying_a_businessWhat’s the one thing every potential business buyer wants to avoid? Failure. The fear of failure is what drives many people to consider buying an existing business in the first place.

Many new business startups fail in the first couple of years. However, businesses that have managed to make it for several years have a much better chance of survival.

By buying a business that has passed through the early years of danger, potential buyers hope to increase their chances of success. But beyond the avoidance of failure, what’s on the minds of buyers who are in the market for a new business?

Choosing the Right Business

First of all, every potential buyer is asking himself, “Is this the right business for me?” Many people who want to buy a business are seeking an escape from the daily grind of a 9 to 5 job. They want to become their own boss and remove limits on their future income and security.

At the same time, they’re apprehensive about stepping out on their own and being completely responsible for meeting not only their own needs, but the needs of employees as well. As the seller, you should also expect questions about your lifestyle as the business owner, as well as questions about the financial vitality of the business.

Potential buyers would like to know what sort of work they’ll actually be doing and how many hours they’ll be putting in on a regular basis.

Is Your Business Affordable?

Potential buyers are also wondering if they can afford to buy your business. They want to know what the asking price is right away and will probably be unwilling to play too many negotiating games. They’ll especially be looking for numbers about your cash flow.

Once they’ve paid all the bills and the payroll (including themselves), they will want to confirm that there will be enough money left over to keep servicing any accumulated debt.

Why Is Your Business for Sale?

Buyers will want to know why your business is for sale. There are many good reasons for selling a business, many of which are unrelated to the performance and profitability of the business. But buyers will be looking for trouble, searching for some negative reason why you’re interested in selling.

Chances are slim that potential buyers will be willing to accept a general answer regarding your reason for selling. If you really are selling your business for health reasons, you might need to share more openly than you’re comfortable with.

Why Are You Selling?

Most buyers are interested in businesses that are performing well within industries that are on the upswing. Of course, any businesses that meet these qualifications will likely be priced at a premium.

Business owners who are in this enviable position are probably not particularly interested in selling unless there truly is a health issue, they are ready for retirement, or they just want to move on to other opportunities.

What is Included in the Sale?

Buyers will want to be clear on what’s included in their purchase of a business. Are they buying the legal entity only? What about inventory and assets? And perhaps most importantly, what about the client list?

Sometimes the most valuable aspect of a business is its existing customer base and supplier relationships. The new owner would most likely want to retain these business relationships so they can continue to build the business.

Will You Provide Support and Training?

Even though existing businesses are less prone to failure than new business startups, the buyer may also be looking for some help in running the business. They may want to know if you, the current owner, would be willing to stick around as a consultant to offer guidance and inside knowledge about business operations. Of course, that all depends on what you want to do and your personal situation.

So what are buyers really looking for in a business for sale? They will probably say they are looking for a successful business that is reasonably priced and represents a good value for their investment and at some level that may be completely truthful.

In many cases, buyers are searching for their dreams of being their own boss and running the whole show. They are looking for the surest bet they can find at the most affordable price. You, of course, are looking for the best price you can get.

Hopefully, you and the potential buyer will be able to find common ground at the negotiating table.

Author: Andy White

Andy White holds a Masters of Business Management and after a career as an Officer in the Australian Army, worked as a Business Consultant and now operates his own successful Real Estate business on the Queensland coast.

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