Considerations When Selling.
Trade Buyer
In summary, while selling to a trade buyer can offer immediate financial rewards and potentially provide a promising future for the business, it also involves relinquishing control and accepting the risk of cultural upheaval, job losses, and negative customer reactions.
Benefits & Disadvantages
Instant Liquidity:
Selling your business to a trade buyer can provide instant liquidity. This can be particularly beneficial if you're in a financial bind or if you're ready to retire and want to cash out of your business.
Premium Pricing:
Trade buyers might be willing to pay a premium price for your business if they perceive strategic value in it. They may see opportunities to expand their product range, increase market share, access your customer base, or achieve economies of scale.
Expertise and Resources:
A trade buyer often has more industry knowledge, experience, and resources. As a result, they may be better positioned to scale the business and achieve higher levels of profitability.
Easier Transition:
If the trade buyer is already in the same industry, they will understand the business better, which can make for a smoother transition of operations.
Employee Stability:
In many cases, a trade buyer will keep the existing employees to maintain the business's continuity, thereby providing job security to the staff.
Limited Control Post-Sale:
Once you sell your business, you typically give up control over its direction and operations. This can be difficult if you have strong emotional attachments to the business or specific ideas about its future direction.
Potential for Job Losses:
While some trade buyers might keep existing staff, others might lay off employees to reduce costs or eliminate redundancies, especially in administrative roles.
Culture Clash:
Trade buyers might have a different company culture or management style, which could lead to conflict or dissatisfaction among the existing employees.
Customer Reaction:
Depending on the reputation and customer relations of the trade buyer, the sale could lead to negative reactions from your customer base. This could potentially result in lost sales.
Potential for Asset Stripping:
Some trade buyers might be interested in acquiring the business only for its valuable assets. After the purchase, they might sell off assets, reducing the overall integrity and potential of the business.
Disclosure of Confidential Information:
During the due diligence process, you will need to share confidential business information with potential buyers. Even if the sale does not go through, your sensitive business information could be at risk.