You may think that selling a business is all about finding the right buyer. And you’re right. Buyers with the proper experience and skills, substantial financing, and initiative create a more seamless, less obstacle-laced journey.
How do you find these buyers? There are a couple of approaches:
- Sell your business on the wide market.
- Use a limited buyer pool approach to finding your buyer.
Each of these methods has its advantages and drawbacks, but they can both be successful in finding a buyer if you’re selling your business. Let’s unpack how they work and the pros and cons of each.
Selling to a Wide Market Buyer
Some business owners who are interested in selling choose a wide market approach. They may partner with an investment bank, broker, or m&a advisor broker to advertise and attract numerous outside buyers. This method may attract buyers the owner knows or ones they’ve never heard of.
Pros of a Wide Market Buyer Pool
There are several upsides to looking for a buyer on the wide market, which is why many owners opt for this path.
- A wide buyer pool often leads to a higher purchase price on average because there are simply more offers on the table.
- It provides a larger number of potential buyers. A larger pool means more eyes would see the company, giving it a better chance of selling. This can appeal to buyers who want an expedited process.
- It gives the company a way to sell faster. Instead of waiting for the perfect buyer to hear the company is up for sale through the grapevine, opening up the buyer’s pool gives investors and companies looking to make acquisitions a chance to make a move. These scenarios can progress rapidly.
- It accommodates for the first deal not working out. For sellers who feel more comfortable with a Plan B, a wider market buying pool can provide that better.
Cons of a Wide Market Buyer Pool
Not everything about selling a company in a wide market is positive.
- The seller has less control. Selling to someone on the open market creates many unknowns that can be stressful for the seller.
- Offers may be smaller, as there’s more competition. Since there are more opportunities for both buyers and sellers on the open market, the company will face stiffer competition. Depending on the other for-sale organizations, the offer could be low.
- They may dilute the brand. A larger buyer pool could mean that a bigger company could “gobble up” the smaller business. This thought could be distressing to an owner who has poured years’ worth of work into their company.
Selling to a Limited Buyer Pool Buyer
Some company leaders would rather narrow their buyer search instead of dealing with the issues of putting it on the wide market. A limited pool buyer could be someone inside the company, in the owner’s network of professionals, or someone who has heard your business is for sale (the “friend of a friend” approach).
Pros of a Limited Buyer Pool Buyer
Looking for a smaller group of buyers to sell a business has unique advantages compared to marketing it to a wider pool.
- Provides the seller with more negotiating power. Finding a buyer in a smaller group usually means the buyer is keen on owning the business. It’s not “just another purchase” to them. This gives the seller the power to negotiate pricing and terms that may not be possible in a wider market.
- Offers a greater opportunity for finding a buyer that fits seller preferences. If the seller is passionate about keeping the branding the same and retaining current employees, there’s more chance of achieving these goals with a limited buyer pool.
Cons of a Limited Buyer Pool Buyer
Buyers must prepare to deal with a few downsides if they opt to sell their business in a limited pool.
- There may not be many interested buyers. Fewer buyers may mean fewer options for selling the business.
- If a sale falls through, it could dramatically prolong the journey. If a potential buyer’s financial backing falls through, it could mean starting from scratch in finding another one.
Deciding if, when, and how to sell a business can be challenging and takes considerable thought. Potential sellers should consider what they want most out of the sale and how much control they want to keep during the process. These answers can guide them to pursue a limited buyer pool or take their company to a wide market.