In the years since BSP was founded, we have been fortunate to interact with many great business owners, brokers, accountants and lawyers. We have been asked many excellent questions, which in many cases, not only helped to better appreciate the owner’s motivations, but also highlighted common frustrations that occur as part of the deal making process.
We thought it would be helpful to create a short list of questions which would:
- Help owners selling their business avoid wasting time with buyers who are not serious or lack the resource to actually close a transaction
- Better appreciate which potential buyer is likely to have the best fit given the specific needs of the seller;
- Convey what is important to a seller, so potential buyers can come forward with the most attractive total package
1. Do you currently own any businesses? What do these businesses do?
This simple question says a lot. Are your potential buyers doing this for the first time? If it is their first time, do you want to be the guinea pig in a process fraught with challenges?
If a buyer has not actually done it before, one should greatly discount claims being made. Issues will inevitably arise and those with experience are in a much better position to get a deal done. At the same time, there is no shortage of companies, equipped with slick websites and presentations, that lack the capital and operational experience to follow through on what is promised.
In short, if you need your car fixed, work with an experienced mechanic, not your nephew who has watched a YouTube instructional video but claims to be an expert.
2. What specifically do you find appealing about my business? What are the biggest concerns you have?
There are two takeaways from this. Firstly, has the seller taken the time to understand and appreciate what your company does?
If they have, they are more likely seriously interested vs the ‘tire kicker’ with a passing interest. Secondly, by hearing what concerns or appeals to them, you are in a better position to gauge if their interests align with yours. For example, if ensuring your employee base is well taken care of is very important, a seller looking to bolt on your operations to a larger platform may not be the best fit.
3. How specifically do you intend to pay for my company?
The days of cheap and easy money are now behind us, at least for this cycle. We have seen and heard of countless deals failing because of an inability to raise debt, equity or in some cases, both.
First, it is important to understand where a buyer’s equity is coming from. The best case is when a buyer has their own cash available for the equity portion of a deal. This avoids the step (and risk) of having to raise outside capital. There is a big difference between cutting a cheque yourself and having to get the thumbs up from multiple outside investors. This will only create greater risk of closing, often later in the process.
On the debt side of the equation, ask the buyer which banks they have done similar deals with. In banking, relationships and track records matter. A buyer has a far greater likelihood of getting debt financing if there is a deep existing relationship with key decision makers at reputable financial institutions (ideally multiple). The tighter financial conditions become, the more important this question becomes.
4. What do the prior owners of your previously acquired companies have to say about you? Pause.. Can you share their contact information?
Like a first date, everyone will put their best foot forward at the start. Give real thought to what matters most to you and be sure that those you are partnering with are people you can trust and are a good fit.
This is no different than doing thoughtful reference checks on a potential employee, these insights can be very helpful in understanding what the people are like once the dust settles. A potential buyer should be able to provide references from those involved in the past transactions. If not, it could be a red flag worth examining.
5. Who would take over my day to day responsibilities and do you operate any similar companies?
Depending on your plan following the sale, it can be very important to understand how a buyer is planning on transitioning responsibilities as well as their experience in doing transitions in the past.
For example, if a full transition in a short period of time is important, hearing the buyer’s plan and their experience in executing similar transitions in the past is critical. As a seller, you do not want to be stuck retaining a bunch of your prior workload because you are concerned about a transition failing (putting any contingent consideration at risk).
Make sure you have the confidence in a buyer’s ability to execute. Remember, creating a sleek presentation and pitch is easy, execution is hard.
We hope these simple questions are helpful as you navigate through the process of selling your business. As always, feel free to reach out if you are a business owner, broker or someone who thinks we could be a potential partner.
Thanks for your time.