Understand vendor types when buying a business for sale

Considering the type of business you are buying shouldn't be your only priority when it comes to purchases. Understanding the type of vendor you're buying from is also crucial.

There are various kinds of vendor in the market and buyers should ascertain which is most suited to their specific circumstances, as well as researching the probable consequences of buying a business from a given type.

Corporate groups selling off subsidiaries: A group that has decided to dispose of one or more non-core divisions may be doing so to repay due debts or boost company focus. Selling quickly may be their goal, so poised and ready buyers could land a purchase price below the market valuation. The same goes for groups selling because of falling share prices.

Private equity owners: Professional buyers and sellers of assets tend not to be emotionally attached to businesses for sale - price and speed are their priorities. Venture capitalists, who usually provide private equity capital to early-stage, high-potential firms, also focus on return on investment. In addition, they tend to prefer to sell rather than generate a stock exchange offering or flotation with their investments - particularly during a downturn.

Privately-owned firms: Here is where you're likely to come up against emotionally-attached owner/founders, so reassuring them you're a safe option is as important as proving you have the money to purchase. Do your research to get a good idea of the value of the business, as private sellers do not always have an accurate picture themselves. You could even end up with an undervalued bargain business gem.

Firms in administration: Currently in abundance, this is an option you shouldn't dismiss. Assess why a given business has failed and whether it's still a good acquisition option. If you can act quickly and exercise due care, a company in administration could prove to be the best business bargain of all.

See also: know who you are buying from

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