When selling your company, there are different types of buyers that you may encounter, including strategic buyers, financial buyers, and individual buyers. These types of buyers each have different objectives. Before committing to a deal, you should have a solid understanding of the buyer’s motivations. You don’t want to waste your time negotiating with prospective acquirers that are not a good fit. There are certain questions that you should never be afraid to ask buyers to get you the information you need to know as a seller.
Why are you interested in my company?
Asking a buyer this one important question can actually help you get a few answers. It can reveal their level of seriousness about getting a deal done. It can also help you assess whether you think they are going to work in the best interest of your company. If they want to purchase your business in order to eliminate you as a competitor, this may not be the outcome you’re seeking. If they show a passion for continuing what you’ve started, or if they are excited about their ideas on how to take it to the next level, these are good signs (that can also reveal how much they know what they’re talking about). At the same time, if you don’t like their answer, you will know that it’s probably time to move on before having to ask anything else.
Have you ever bought a business before?
Some buyers have much more experience than others. Their background and history is key to determining if they have the right resources to even facilitate a deal. Look for success stories and failures. If they have failed deals, ask questions to understand why. You should also beware of predatory buyers who attempt to mask their intent or lure you in with lofty promises that seem too good to be true. A buyer’s experience can be a great indicator of whether or not you should entertain their offer. However, just because they do not have a ton of experience, it doesn’t mean that they’re the wrong option. It may simply a situation where your company and their intentions are a perfect one time-solution.
What is your price based on?
If a buyer makes you an offer, ask them how they arrived at that price. Did they follow any valuation formulas? For example, did they factor in tangible and intangible assets, as well as gross and net revenues? Their price may not be what you are expecting, which is why you as an owner need to have an accurate valuation of your company before you can determine what is reasonable as a seller. Sometimes, compromises are needed on both sides of the deal in order to close at fair market value. A deal can also be restructured in a way to make it more amenable. You should have an M&A intermediary representing you in order to deal with these complicated issues that will include taxes, client concentrations, contracts, depreciation recapture, and other factors.
How long have you been looking to buy?
As a business owner, you do not have much time to waste. So, if you find out that a buyer has been shopping for a long time with no action on their part, they could just be interested in talking about it with no intention of closing a deal. There are some “buyers” who are infatuated with the idea of buying a business, but will never really pull the trigger. Consider how many deals have they passed on. Ask why. If someone has a long-term pattern of holding out for the perfect deal, you might want to move on.
How will you finance the purchase?
Asking this question can also help you weed out the unrealistic buyers. Their explanation of their financing plans and access to capital will show their seriousness and how reasonable they are. You won’t want to start negotiating with a buyer who will ultimately never be able to afford to make a deal. Serious buyers will be adequately prepared to answer this question.
Do you plan to maintain the legacy of my business?
You’ve worked hard to build your business, so its legacy is likely a concern for you, especially if it is family owned or has been in your family for generations. If a sale is less about cashing out on a big payday and more about the future of the business, you will want to find a buyer that shares your concerns and has a plan that satisfies your vision for the future. This becomes even more important if you have family that will continue to be employed by the company. You will want to make sure that they are taken care of and treated right.
Enlist the help of an expert.
When you’re looking for the right buyer for your business, there is obviously a lot to consider. It’s a complicated process, and it can be an emotional one. You can make the process easier by hiring a professional such as an M&A advisory firm to help you navigate around common pitfalls. They also possess the kind of connections and resources that can gain you exclusive access to high-quality buyers, so you don’t have to worry about taking the time to weed out buyers that are not serious. Additionally, and maybe most importantly, a good M&A expert will help ensure that you get the maximum valuation for your company and do not leave money on the table in a deal.