If you are considering selling a business you own, it is important to look at your company from a buyer’s perspective. Understand what potential buyers are looking for and what questions they may ask. How prepared you are for buyer inquiries could make or break a deal.
Why is the business for sale?
This is maybe one of the most obvious questions, but also one of the most important. If you are running a profitable, attractive business, why are you trying to sell? It’s a fair question. Are you burned out or want to try something new? If you have been running the business for a long time, this is understandable, but if you have only been running it for a few years, buyers might see this as a red flag. They may wonder if the business will burn them out as well. Are you selling because of health issues? If so, be up front about those issues, or buyers may assume that you’re just tired of running it. Be as transparent as you can about your intentions.
How much money does your business make?
This question in another no-brainer, but you have to make sure you are showing your business’s profits in the proper light. Often, business owners will look for big write-offs and deductions to reduce their tax liability. This is fine, but it can make your company look less profitable than it really is. Consult with an accountant or business broker about re-casting your financials to show the company’s true profitability. This process includes leaving out expenses that would not transfer to new ownership. It also includes adding back any company profits taken as additional salary for the owner to reduce the company’s tax burden. Recasting not only makes the business look more profitable, it also can help justify a higher asking price.
Are the business financials well documented?
Besides knowing that your business is profitable, buyers will want to see that there is a clear paper trail for the company’s financial data. Organized bookkeeping helps to show them where every dollar goes and proves the business’s profitability. This can also help show the buyer how the business is structured. You should already be practicing consistent bookkeeping, but make sure you have all of your financial documents ready to go before listing the business for sale. If you are not prepared to furnish them when a buyer asks, or if there is a delay in providing them, it could be a warning sign to them, and could kill momentum on a deal.
How much does the business depend on a key customer or vendor?
You might have a very successful business, but if your success depends too much on a small group of clients or suppliers, it can be seen as a big risk to buyers. This makes the business’s profitability seem fragile, because if a key client or vendor walks away, the company could struggle. This is a difficult issue to rectify in a short amount of time, but if you find yourself in this predicament, try to market the business to a new group of clients. Consult with an experienced business broker on what strategies to take, or what other aspects of the business you can highlight to make up for this potential risk factor.
What will your employees do after the sale of the business?
Are your employees aware of the company’s pending sale? If so, are they planning on staying with the company post-sale? Ideally, buyers want key employees to stay with the company to help them transition, especially since most new owners will not want to be overwhelmed from the start. They also won’t want employees leaving for competing companies right away, or potentially bringing customers with them. As a business owner, you can offer employees some sort of incentive for staying with the company a certain period of time after the sale. This can help reassure buyers that they will have fewer hiccups when they take over the business.
How well documented are the business procedures and how can we run this business on our own?
Potential buyers want to be able to see a path towards running the business themselves. Small businesses often run with no documented procedures or policies in place, but the new owner will need some sort of direction to get started. Just like financial documentation, procedural documentation is evidence of an organized business. It shows buyers how they can transition the company to their ownership. Some buyers might also ask if the seller can stay with the business after the sale to help train the new owner. Offering to stay for a period of time after the acquisition could help close a deal faster. If this is something you think you might be willing to do, consider the terms of this training period in advance.
Do you offer seller financing?
Offering seller financing can increase the chances of selling your business. It can help you to find more buyers, negotiate a better deal or sell the business faster. It can also be structured to provide you, the seller, with a steady stream of income for a period of time after the sale. While there are benefits to offering seller financing, it also comes with some risks. Get advice from a business broker before deciding whether offering it can be beneficial. The decision will come down to whether or not you want to remain attached to the business after the sale, and for how long.
Every business is different, as is every buyer, so these are by no means the hardest questions you will encounter when selling your business. The best way to be prepared for any and all inquiries is too work with a business broker. They can act as a buffer between you and prospective buyers, and help you get ready for the most likely questions.
If you are contemplating the sale of your business, now is a great time to be selling, as demand for Southwest Florida businesses is currently very high. Contact CIBB for a free, no-obligation consultation and business valuation and find out if selling is the right move for you.
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