Strategic vs. Financial Buyers: Who Would Buy Your Business?

Strategic buyers buy for fit, financial buyers buy for returns, and individual buyers buy a business to run. Knowing your likely buyer tells you what to fix first.

Not tax or legal advice. This article is general information based on my own experience selling a business. Every business and deal is different. Talk with your own CPA, attorney and financial advisor before acting on anything here.

The short answer

There are three main kinds of outside buyers. Strategic buyers are companies in or near your industry that buy because your business makes theirs better; they can sometimes pay the most, but often fold you into their operation. Financial buyers, such as private equity funds, family offices and investor groups, buy your business as an investment and usually need it to run well without you. Individual buyers want to buy a business and run it themselves, often with an SBA-backed loan. Each looks for different things.

Strategic buyers

A competitor, supplier, customer or larger company that wants your customers, people, products or location. Because they can combine your business with theirs, they can sometimes pay more than anyone else. The tradeoffs: your name may go away, overlapping roles may be cut, and they may not need you around for long.

Financial buyers

Private equity usually plans to grow the business and sell it again in a few years, so they often want you or your team to stay, and they may ask you to keep some ownership. (More in selling to private equity.)
Family offices invest one family's money and can hold a business for a very long time.
Smaller investor groups and independent sponsors raise money deal by deal.

Individual buyers

People who want to own and run a business themselves, often financed with a loan backed by the U.S. Small Business Administration. For smaller businesses, this is often the most likely buyer. They usually need your help with the handoff, and sometimes ask you to carry part of the price as a seller note. SBA loan rules shape these deals, for example by limiting earnouts and how long the seller can stay on, so ask your advisor how they apply to yours.

Buyers inside your own walls

Your managers, your employees through an ESOP, or your family can also be the next owners. See your options besides an outside buyer.

Why it matters now

Each buyer looks at different things. A strategic buyer cares about fit. A financial buyer cares about steady, provable earnings and a team that runs without you. An individual buyer cares about whether they can step into your shoes. If you know your likely buyer, you know what to fix first.

One thing to try this week

List three companies that would be better off owning your business. That's your strategic list. Then ask yourself honestly: could someone else run this without me?

Who would buy my business? Strategic, financial and individual buyers