There are normally three types of Buyers

THE STRATEGIC BUYER

These are usually the most qualified. They almost always pay cash and buy at a premium. Their decision to buy usually revolves around considerations of economies of scale, new channels of distribution, new technologies and other integration considerations. To be attractive to a strategic buyer, your company should fit most of the following criteria:

• •    Sales usually in excess of $1million
• •    Proprietary product or process
• •    Unique market presence
• •    Synergistic fit with the buyer
• •    Suitable management willing to stay

CASH FLOW BUYER

By far the largest group of buyers and the most common for businesses valued at less than $2 million. These buyers tend to focus solely on the present and past earnings and will not typically pay a price based on future earnings. The cash flow buyer will consider a price fair if the transaction meets the following criteria:

• •    Living wage typically commensurate with the initial investment
• •    Modest return on the cash investment
• •    Seller and/or third-party financing
• •    Good fit with their skills and the opportunity to improve cash flow

INDUSTRY BUYER

The difference between this category of a buyer and all others is the value of goodwill. That is, industry buyers won’t pay for it and are usually looking to acquire a company where the owner or the company itself is in some form of distress. The industry buyer typically will pay:

• •    Liquidation value
• •    Book value
• •    Adjusted book value

All too often business owners who are attempting to sell their business on their own end up dealing with an industry buyer.