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Considerations in Selling Your Business- Part 6: Identifying Potential Buyers - continued

by Patrick B. Mathis, Shareholder at Mathis, Marifian and Richter, Ltd.

Identifying Potential Buyers - continued

(a continuation of Considerations in Selling Your Business- Part 5: Identifying Potential Buyers)

In selling your business, the obvious goal is to find the optimal (i.e. highest paying) buyer.

iStock 74849441 LARGEIn many cases, sellers can readily identify potential buyers such as local competitors, national competitors, or national firms in the same industry. Competitor buyers frequently offer the highest sale price opportunity because they are often strategic buyers who will benefit from an expanded product line, increased market share and reduced operating expenses which will ultimately generate higher profits from the acquired business. In many cases, too, elimination of a competitor through a purchase of its business may allow a buyer to increase gross profit margins or acquire significant customer accounts from the selling business.

In these cases, a seller may make direct contact with potential buyers or utilize his or her attorneys, accountants or other advisors to initiate such contact. This intermediary’s role may range from simply making the initial contact and inquiry as to interest, to negotiating and finalizing the terms of the sale, with the seller having little direct contact with the purchasing party. Such intermediaries may also contact multiple potential buyers and serve as a “screen” to secure a confidentiality agreement before disclosing the identity of the selling party, and provide an initial package of information to interested parties before the seller has any direct contact.

In other cases, sellers may have no idea as to a potential buyer. In those instances a third party such as a business broker who may be active in the seller’s industry, general business brokers, accountants or attorneys who have other clients within the industry may serve to identify and bring potential buyers to the table. The careful and thorough analysis of the market place and potential buyers, an initial analysis of the valuation and potential sale price of the business, and evaluation of the market approach is often critical to realizing optimal value in a sale. Regardless of the course a seller selects to identify and solicit buyers, the selling business and its advisors should fully understand the marketplace, targeted price, and approach before entering the sales market.

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