Entrepreneurs often spend years building their agency and, when it comes time to sell, they naturally want to sell for the best price, whether to retire or simply to cash out and move onto something new. However, sellers often focus solely on the financial components of an offer and overlook some of the most important factors in determining if a buyer fully aligns with their acquisition goals. When selling your agency it pays to know the buyer you want!

Defining Your Acquisition Goals: Know Your Buyers

Buyers fall into four categories — strategic, financial, internal and solo entrepreneurs — and each type of buyer approaches buying a business like yours with a totally different acquisition goal in mind.

1 – Strategic Buyers

Strategic buyers often want a company that fits with their own, perhaps because of complementary products or to advance their geographic or vertical expansion. Often times these buyers are competing companies who place a premium on things like market share and brand recognition. Strategic buyers generally don’t value your current management team or employee base as much, since their team will most likely assume day-to-day operations. When evaluating agencies to purchase, strategic buyers like to see growing profits and the potential for even more in the future.

2 – Financial Buyers

Financial buyers are often times private-equity investors who want to grow earnings or merge companies to capture savings. These buyers almost always have the goal of selling the agency for a higher price in three to five years and aggressively pursue their agendas to maximize their investment return as quickly as possible. Financial buyers want free cash flow and growing revenue and are often times less concerned about profits since they view themselves as experts in squeezing the maximum from operations. Unlike strategic buyers who don’t place any value on your current management team, financial buyers favor a strong team that can execute on their vision. If the seller wants to cash out but would like to remain at the company for a few more years, a financial buyer would make the most sense.

3 – Internal Buyers

An internal buyer, often management teams or second-generation family members, are people who work at the company and often times share the owner’s vision and want to build upon it. These buyers are unlikely to pay the highest price, but they will almost always commit to preserving the culture or core ethos of the company. Internal buyers generally want to see strong financials and a solid balance sheet, as well as a good corporate culture and a diverse offering of products and services.

4 – Solo Entrepreneur

An entrepreneur buyer is generally a single person who is purchasing their first business or is looking to add a business to their modest investment portfolio. In most cases, solo entrepreneurs plan on being involved heavily in the day-to-day operations of the business and will most likely not plan on “flipping” the business in a few years. Entrepreneurs vary greatly in what they look for in a business and often require the most hand-holding during the business transition. For some sellers, the heavy involvement during the transition period can be a deal-breaker, but on the other hand, solo-entrepreneurs often pay top dollar for businesses because they are more emotional and personal purchasers than the other buyer types.

Identifying Your Goals As The Seller