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Striking a Deal: Introduction & What Motivates Buyers

It has been said that the true value of a business is the amount that a buyer is willing to pay for it.

When the final negotiations begin, you will discover that the value you assigned during the valuation process offers a useful benchmark, but it will not likely be the final purchase price. At this point, intangibles enter the equation, and depending on the factors that motivate each party, the final purchase price could be higher or lower than the price calculated during the valuation process.

Driving forces: what motivates buyers
What motivates someone to buy a business? Whether you are a buyer or seller, understanding the driving factors will be vital to negotiations. We spoke with Wise, who explains that buyers can be divided into two categories: financial buyers and strategic buyers.

Financial Buyers, says Wise, are people who want to buy a business to increase their assets. They may be looking for a good investment or have a personal interest in a particular company. Financial buyers aren't necessarily looking for a business where they will spend a lot of time taking care of the day to day operations.

Strategic Buyers are motivated by a desire to participate in a particular market as a business owner. Some want to buy a business because they have always wanted to be their own boss, while others look at the purchase as a strategic tactic taken to improve the success of an existing venture. For example, a strategic buyer might buy out a competitor in order to consolidate marketshare or increase in size and scope.

While strategic and financial buyers are each motivated to buy a business for different reasons, both want the best possible price, says Wise.

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Striking a Deal: What Motivates Sellers

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