Your buyer’s questions will reveal why they plan to start a business. Usually it’s because they want to be in control of their prospects and determine their own future. More specifically, some just want to be their own boss, or sometimes it may be that they want to work in a business which suits their talents – and a few just want to make piles of cash!
Whilst no one goes into a business to lose money, it’s rarely the defining objective. The above reasons are listed in priority order, and the first three all reflect variants of ‘American Dream’ thinking, suggesting this concept remains as relevant as ever. Whatever your buyer’s motivation, here’s ten questions they will expect you to be able to answer:
1. Why not start a business instead of buying one?
A ‘going concern’ is just that, and small businesses are most likely to fail during the start-up phase. Existing businesses have a track record of actual sales, costs and real profits, which ditches the need to rely on projections. Also, many sellers will offer the priceless benefit of staying on so you learn the ropes whilst picking up valuable tips and tricks.
2. Is this a good business for me?
Prior to listing, brokers mostly have a clear idea of the buyer profile that’s an ideal fit for the business. This saves marketing time because connecting the right prospects to the right deals puts everyone on the front foot – after all, that’s a broker’s job. Marketing the wrong business to the wrong buyer does no one any favours.
3. Do the numbers add up?
As a seller, you can write down what you like about the financial record of your business, but if you can’t prove your figures, your buyer won’t pay your price. And don’t include undeclared income, that’s just a tax department discount! Providing clear financial records upfront builds trust with potential buyers. So don’t market your business until your books are in order.
4. Is it at the right price?
A savvy buyer may be persuaded to pay extra to snap up a hot prospect, but no one ever plans or expects to pay over the odds. No matter what calibre of business you’re marketing, no buyer will invest without the promise of a reasonable profit after debt servicing and all business expenses have been met.
5. Is financing available?
You will rarely handle a cash sale – and there will be a heavy discount if you do. Mostly, buyers pay a significant deposit and expect to finance the rest. Many are unprepared for the reluctant attitudes of traditional lenders, which is why deals are often seller-financed. Not only does this directly improve the prospect of a sale, it increases buyer confidence too.
6. Is a lawyer required?
A lawyer familiar with the process is a real asset, but the seller must be prepared to make the final decision. And whilst you can’t rely on a broker’s legal advice, you can’t rely on a lawyer’s business advice either! Whilst a lawyer must always protect a buyer’s interests, when taken to extremes, the seller’s lawyer will just advise calling off the deal.
7. What are the prospects of success?
Naturally, buyers need adequate funding to develop a business. In addition, you have to be thoroughly committed. Remember an owner is ultimately responsible for everything – even if that means doing menial jobs when employees are sick. If, when required, you can’t commit on that scale, then business ownership may not be your calling.
8. Will the employees (and customers) stay on?
This is tricky and important. As a seller, you must be aware this is a key concern for buyers and will influence their overview of business potential. Even though confidentiality will be an issue for sellers, disclosure can be staged as negotiations progress to provide reassurance to the buyer. Carefully structured contact with key customers and employees assists the process.
9. Can I rely on lease assignment?
Be aware an awkward landlord can throw a deal off course, and a meeting between the seller and landlord can often iron out any potential issues arising from a prospective sale before they become problematic. Landlords, for example, may wish to repair/renovate or discuss new terms with a new tenant, and lease assignment clauses should always be carefully checked for snags.
10. Where are the hidden problems?
All businesses have dark corners. To generate trust, these should be mentioned early – late disclosure has the opposite effect. Never rely on hiding the facts, they are bound to surface, probably when you least expect or want them too. You’ll find a deal in good faith between a keen buyer and seller develops a momentum of its own, which you won’t be able to stop even if you wanted too!