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Corporate downsizing and growing employee dissatisfaction have created a new class of entrepreneur: the first-time business buyer. According to one report, nearly 60% of buyers have never owned a business before.
First-time buyers are not always the easiest people to negotiate with. But if you understand how they think, you’ll be in a much better position to close a successful deal.
1. They’re risk-averse and want deals they can understand
Many first-time buyers are leaving the relative safety of traditional employment, and that transition can feel daunting.
We worked with one prospective buyer who had spent 25 years in a corporate role and wanted more control over his future. But with that control came significant perceived risk. He planned to use retirement funds for the down payment and would be giving up a generous healthcare package. From our perspective, the risks seemed manageable. Healthcare could be replaced, and most of the financing came through a Small Business Administration loan. But to him, the stakes felt enormous. Walking away from a reliable paycheck and strong benefits is not a decision most people make lightly.
The more secure first-time buyers feel about the business and the financials supporting their investment, the more likely they are to move forward. They want transparency, clarity and professionally prepared financial reports their advisors can trust.
Strong financial reporting does more than demonstrate profitability. It signals that the business is organized, well-managed and free of unpleasant surprises.
2. They know what they don’t know
First-time buyers often depend heavily on professional advisors to guide them through an unfamiliar process. The challenge is that many do not think about assembling that team until they are already deep into a deal.
They may spend months searching for the right acquisition opportunity only to realize they have not hired an accountant or attorney. Some are unfamiliar with basic transaction documents such as letters of intent. Others are asked to submit an offer and have no idea where to begin. At that point, the process often slows down while they interview advisors and build a support team. Once the team is in place, the transaction effectively starts over.
In some cases, buyers choose advisors who create more problems than they solve. Whether motivated by fees or limited experience, the wrong advisors can derail an otherwise viable transaction.
3. They’re less emotionally attached than you are
You may have spent decades building your business from the ground up. Naturally, you feel a deep connection to it and take pride in what it has become. Your buyer will not share that attachment.
Most buyers evaluate acquisitions objectively, but first-time buyers tend to be especially focused on measurable value. Their decisions are driven by financial statements, projections and risk assessments rather than sentiment. With less experience and more uncertainty, they often approach acquisitions with a highly analytical mindset.
As a seller, it helps to do the same. Step back and view your business through the eyes of a prospective buyer. Engage professionals who can assess the company objectively and identify potential concerns before they arise during negotiations. And when buyers ask tough questions about revenue, margins or growth projections, do not take it personally. Those questions are part of the process. In fact, having strong answers may be exactly what justifies the valuation you are seeking.
Be grateful for first-time buyers
Over the next decade, millions of business owners are expected to exit their companies as baby boomers retire. Without an influx of first-time buyers, many sellers would face a market where supply significantly exceeds demand.
These aspiring entrepreneurs are helping fuel the next generation of business ownership.
If their caution, endless questions and requests for data test your patience, remember that every business owner was once a first-timer. The more confidence and clarity you can provide, the more likely you are to build trust, keep the process moving and ultimately close a successful deal.
Be grateful for these new entrepreneur hopefuls, and if you get impatient with their risk avoidance and their demands for data, data and more data, remember: All of us at one time were first-time business owners and first-time entrepreneurs. The more reassurances we can provide this new business owner, the better your chances of getting a good deal done.
Corporate downsizing and growing employee dissatisfaction have created a new class of entrepreneur: the first-time business buyer. According to one report, nearly 60% of buyers have never owned a business before.
First-time buyers are not always the easiest people to negotiate with. But if you understand how they think, you’ll be in a much better position to close a successful deal.
1. They’re risk-averse and want deals they can understand
Many first-time buyers are leaving the relative safety of traditional employment, and that transition can feel daunting.
