5 Characteristics to Look For in a Small Business Buyer
After recently listing your business for sale, you have been pleasantly surprised by the number of prospective buyers who have lined up to express interest in your company. Good news, right? Not necessarily.
Here's the problem: some of these prospects could be tire kickers--would-be small business owners that lack the ability, means or desire to actually close the deal. And because tire kickers waste valuable time and energy that could be devoted to real buyers, it's important to quickly separate qualified buyers from the rest of the pack.
5 Characteristics of Qualified Business Buyers
Experienced business brokers have seen it all and are skilled at quickly identifying buyers who may not be serious about purchasing your business. If you are not using a broker to facilitate your sale, narrow your search using these five key characteristics of a qualified business buyer.
- Business Experience. A lack of previous ownership experience isn't always a deal-breaker. However, qualified buyers usually have business experience in the industry or a related field. If the buyer is unfamiliar with the industry, doesn't possess the necessary certifications, and has no previous leadership experience, it's unlikely that he will succeed as your company's next owner. A lack of experience can also hinder a prospective buyer's ability to secure financing, meaning they may not be as financially capable as other candidates.
- Capital. The buyer's ability to pay for your business should be raised during the pre-negotiation period, before you invest time and emotional energy discussing the terms of the deal. It is entirely appropriate to ask prospects to complete a Personal Financial Statement, showing that they have enough capital to fund the down payment and the first year of operation. Additionally, qualified buyers should be able to demonstrate their ability to secure financing for the remainder of the sale.
- Enthusiasm. Tire kickers are enthusiastic about the idea of acquiring your company. However, serious buyers will be as enthusiastic about the details of the business operation as they are about the ownership concept. Buyers who disengage from discussions about the details of the business and fail to ask questions about vendor relationships, employee histories, major competitors and other drill-down topics probably don't have the skillset for running the company successfully.
- Timeframe. Timing is an important consideration. Some buyers may be early in their purchasing process and lack a sense of urgency about finalizing a deal. Others may want to move quickly while you are still trying to qualify other possible candidates. Talk to prospects early in the process to determine whether they are ready to pull the trigger on their ownership plans or whether they are still months or years away from making a serious offer.
- Fit. Dedicated small business owners care about the success of their companies long after they have completed their exits. To succeed over the long-term, your company needs an owner with a skillset and mindset that aligns with your customers, vendors and employees. Likewise, the prospective buyer's transition goals need to match yours, especially when it comes to your involvement with the company post-sale.
In the current business-for-sale market, there is no shortage of interested buyers. For business sellers, a large pool of buyers can be both a blessing and a curse. By taking the time to evaluate each prospective buyer early in the process, you can weed out the tire kickers and focus on buyers who are truly qualified to successfully run your business.