Buying a business: know who you're buying from

When buying a company, it is important to not only consider what kind of business you are buying, but also understand who you are buying it from. There are several types of business owners. It is important for you as a buyer to pay attention to which company will best suit your needs and lifestyle, or at least understand the possible consequences of buying from a particular owner.

Let's look at the most common types of owners you may encounter when purchasing an existing business.

Private investment owners

Private investment owners — Professional buyers and sellers of assets, so they tend to be unattached and emotional about the business. They focus solely on price and speed of sale. These owners have a reputation for being tough negotiators and may be inflexible when it comes to guarantees. The advantage for the buyer is that they usually act relatively quickly to remove assets from their balance sheets.

Venture capitalists are usually behind the business of private equity owners — individuals or investment companies that make venture capital investments, which are a type of private capital provided to early-stage companies with high potential and rapid growth. Venture capitalists are focused on return on investment and often work with companies in the technology sector. For speed and simplicity, venture capitalists generally prefer to sell their investments rather than go public or float.

One of the most important things to consider when acquiring a venture capital-backed business is the relationship you have with the company's management.  Very often, managers may fall out with their shareholders, in which case mending may be necessary.

A large corporation sells a subsidiary

A large corporation selling a subsidiary, — Another common type of salesperson you may encounter. Typically, these owners are large corporate groups that have decided to divest one or more of their divisions. What the owner — a large corporation doesn't mean you have to relax. It is still necessary to properly understand the reason for their decision to sell.

You can quickly make a few preliminary queries and see what you find. Perhaps the company's board is forced to sell in order to pay off debts or strengthen the company's focus, so parts of the business that were considered non-core are put up for sale. In this case, the business can be sold in a healthy state, but for its owner, time often plays a decisive role. As a buyer, you can use this to your advantage since the owner's priority may be a quick sale rather than achieving the best price. Thus, if you are a buyer who knows such nuances, you can definitely achieve a purchase price significantly below the market price.

Another situation that may work to your advantage (if you've done your research) — this is that shares of a public company may fall in price, and the corporation is forced to quickly get rid of unprofitable businesses without waiting for the stock price to recover. For a cautious buyer, profitable deals are possible in such a situation.

At the other end of the spectrum for large corporate owners are auction sales. They may be used to sell a company in an attempt to obtain better prices. Owners are often looking for direct cash deals, so if you're looking to buy at auction, make sure you're prepared and have the necessary funds and resources on hand.

It's also worth noting that it can sometimes be difficult to reach the decision maker in such a large corporation, so be prepared for this. Working with large organizations may require patience and quick access to resources, but the results may be worth the effort.

Private company

Another common type of owner when selling a business is a private company. Inevitably, founding owners are often emotionally involved with their business. If you want to buy such a company, you must be prepared to win the favor of the current owner and assure him that his company will be in good hands. This is in stark contrast to corporate owners, private equity owners and administrators who only care about making sure the buyer has the money to buy.

Unlike  other types of owners, a private seller does not always have an accurate idea of the value of their business, so good negotiation and research skills on your part as the buyer are especially necessary for such acquisitions. It even happens that second or third generation family owners underestimate the potential of their business and sell what could be a crown jewel of a business at a much lower price. Don't forget that information — this is the key to success!

Companies under management

With the growing number of enterprises falling under administrative control, the purchase of a company under administration — the phenomenon is more common than you think. Don't just give up on a business because it has problems, there may be significant opportunities here that are worth exploring. However, you need to evaluate a few things first.

An important question to start with, — why the business failed: the company is short of cash or there is a larger problem with making a profit. The answer to this question can quickly be completed by answering the question of whether the business remains a good acquisition option for you as a buyer. In some cases, companies in administration may be the best possible deal, provided the buyer exercises due diligence and can act quickly.

Knowledge of the owner of the purchased business — an essential tool for conducting effective negotiations and obtaining the best price. Don't underestimate the importance of specific reasons for selling. This complex and extremely serious work should be entrusted to the appropriate specialists. One of these professional teams operating on the international market — this is Russian-Eurasian Business Broker (REAB).