Discovering Your Buyer Type: Strategic, Financial, or Lifestyle

Types of buyers: Financial, Strategic, Lifestyle

 

When it comes to buying a business, there are three primary motivations for wanting to take that next step. Every buyer enters the process with an objective in mind, a reason as to why they want to buy a business. We take a look at the three main drivers, and how you can identify yours and the best way to approach a seller. 

1. Strategic Buyers

Strategic buyers are typically other businesses or corporations looking to expand their operations, market share, or product portfolio.

Motivations

• Synergies and Integration: Strategic buyers look at buying businesses that can complement or enhance their existing operations. This could be through complementary products or services, access to new markets, or improved operational efficiencies.
• Competitive Advantage: Acquiring a competitor or a business in a related industry can provide a competitive edge by consolidating resources, eliminating duplicate expenses, and gaining a larger market share.
• Diversification: Strategic buyers may aim to diversify their offerings or reduce reliance on a specific market segment or product line.

How to Approach Sellers
 

• Value Proposition: Sellers can often command a premium from strategic buyers due to the perceived value of the business within the buyer's broader strategic goals. So when approaching sellers, consider how you want to proceed with negotiations and the best way to secure a good deal. 
• Integration Planning: It's important to have a clear plan for how the acquired business will be integrated into your existing operations. Ensure you understand all aspects of the business you are enquiring about. 

 

 

2. Financial Buyers

Financial buyers, often private equity firms or individual investors, are primarily focused on achieving a return on their investment.

Motivations
 

• Profitability and Growth Potential: Financial buyers are typically interested in businesses with strong revenue streams, growth potential, and opportunities for operational improvements.
• Exit Strategy: They plan to enhance the value of the business and eventually sell it for a profit, often within a defined timeframe.

How to Approach Sellers
 

• Thorough Due Diligence: Financial buyers tend to conduct thorough due diligence to assess the business's financial health, market potential, and operational efficiencies. When you approach a seller you will request all this information and expect it to be organised and ready. 
• Financial Strength: Typically financial buyers have their finances sorted or are 'cashed up'. This can be a strong negotiating point with sellers. 

 

 

3. Lifestyle Buyers

Lifestyle buyers are individuals seeking to purchase a business primarily for personal fulfilment, lifestyle preferences, or a desire for greater independence.
 

Motivations
 

• Personal Fulfillment: Lifestyle buyers are often passionate about a particular industry or have a specific interest in the type of business they are acquiring.
• Work-Life Balance: They value the flexibility and autonomy that comes with owning and running their own business.
• Community Impact: Lifestyle buyers may prioritize businesses with a strong community presence or those aligned with their values.

How to Approach Sellers
 

• Transitional Support: Lifestyle buyers may appreciate transitional support or training to ensure a smooth handover of the business. When speaking with vendors assess the training period inclusions so you can get a solid understanding of the business. 
• Emphasis on Non-Financial Factors: While financial considerations are important, lifestyle buyers may also place a significant emphasis on non-financial aspects, such as work environment and personal satisfaction. When you speak with vendors make sure you understand the level of commitment required by you as the owner. Is the current owner working 10 hours a week or 80?

Understanding which type of buyer you are can help you understand which business is best suited to you and how to approach vendors and begin negotiations. Sellers will have an idea in their mind of the type of person that would be suited to buy their business, so if you know your motivations to purchase a business you could have the upper hand in negotiations. 

Tags: buyer buying a business

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