Value Based on Buyer

A key concept in determining what a buyer will pay for a business is often determined by the type of buyer. There are three main types of buyers.

A financial buyer is primarily focused on the numbers. The financial buyer may not have any experience in this type of business but because of the profitability and financial results of the business they are interested. Most buyers have some of the same questions and requirements of a financial buyer but, may have overriding other considerations. A significant part of the different valuation methods are based on this type of buyer.

A strategic buyer is normally a business that is already in the industry and it trying to expand their market share. This may be a vertical or horizontal acquisition for them. For example a strategic buyer may be interested only in the number of customers or subscribers. Accordingly, they will pay for the business based on the number of customers or subscribers multiplied by a set value per customer. Another example is in oil and gas and mining industries. The value of these businesses may be in the value of the product still in the ground. Sometimes strategic buyers are not interested in retaining employees or physical facilities. However, other strategic buyers are interested in adding additional locations to expand and will be interested in employees and physical facilities.

Life style buyers frequently have a vision of a new life where they are in control. Sometimes this is someone that has always been in a larger business situation and they want the responsibilities both good and bad for the success of a business. Sometimes the life style buyer wants a particular type of business such as an antique car restoration business, a fishing shop, a woodworking shop, a software programing or many other situations. Lifestyle buyers will be interested in the financial considerations of the business.