Often, the actual process of selling a business is unknown to the business owner. This leaves him or her vulnerable to making significant mistakes. In this, part 2 of their series, Wealth Management offers a road map to guide advisors in attempting to tackle some of the most common issues that clients may face. (In case you missed Part 1, here it is.)
In our first installment, we discussed timing, family dynamics and putting together a crack team. In this article, we’ll focus on the different types of potential buyers clients can look to court as well as the importance of financial and tax planning in readying the business for sale.
Potential purchasers of closely held businesses come in many forms. The most common are:
1. Strategic buyers. These are purchasers who want to buy the company because of certain synergies with their existing businesses. Strategic buyers may get more value out of the acquisition than the intrinsic value of the company. As such, they may be willing to pay a premium price. Strategic buyers are sometimes referred to as “synergistic buyers.”
2. Financial buyers. Typically private equity firms, these purchasers are interested in the return they can achieve by purchasing the business. Their goal is to increase both cash flow and the company’s value over a period of years and then either sell the business or take it public.