SELLING A BUSINESS

Could You Spot a Qualified Buyer?

It's essential to weed out the unqualified buyers when trying to sell your business. These steps will help you sort through the offers and focus on only the most capable buyers.
Advertisement

The first decision in the process of dealing with potential buyers for your small business involves screening inquiries from those who respond to your business-for-sale ads. Be prepared: Most sale advisors will tell you that nine out of ten people who respond to sale ads will never make a purchase. They'll also tell you that many of those who do respond simply don't have the qualifications or capabilities to buy the business being offered.

  • Some are wannabe shoppers who want to buy a business but are in no way ready to do so because they either lack the financial resources or business acumen to complete a purchase.
  • Some are tire-kickers who are simply curious about what kinds of opportunities are available.
  • Some are competitors masquerading as buyers in order to gather intelligence.
  • Some are what those in the industry call "sharks" who are searching for sellers who look overly anxious to sell and who may be willing to accept rock-bottom prices.

Your job, or your broker's job if you're using one, is to separate the strong bets from all the others.

Step 1: Be clear about the necessary attributes of your likely buyer.

Screening ad responses gets easy only if you know your knockout factors. So make a list of what qualifications and capabilities are essential:

  • What business experience, professional certifications, etc., are absolutely necessary?
  • How much cash do you think you'll require on closing day?
  • If you'll be offering a seller-financed loan, what type and level of solid collateral will you require as security?
  • What timeframe must the buyer be prepared to act within?

Step 2: Screen and sort ad respondents by their ability and likelihood to buy your business.

Your ads will provide information to help unqualified buyers opt themselves out, plus they'll require respondents to provide information that allows you to pre-screen their capabilities before pursuing their interest further. Based on the information each prospective buyer submits, complete the following pre-qualification form:

Yes

No

Maybe

Is the buyer specifically interested in your business or market area?

Yes

No

Maybe

Does the buyer possess the necessary education, licenses, certifications or experience?

Yes

No

Maybe

Is the buyer interested in making a purchase within your timeframe?

Yes

No

Maybe

Is the buyer seeking a business of your size and in your price range?

Yes

No

Maybe

Does the buyer have the ability to meet your closing day payment expectations?

Yes

No

Maybe

Is the buyer qualified for an SBA or other third-party loan (or to meet your seller-financed loan qualifications)?

If a prospective buyer earns a line-up of "yes" answers, you know you have a solid lead.

A string of "no" answers lands an inquiry in the "not now/maybe never" pile.

Those who get "maybe" answers need to share additional information about their qualifications before you can screen them in or out as prospective buyers.

Step 3: Verify the information the buyer has provided.

If you're working with a broker, he or she will handle the task of obtaining information that verifies the buyer's financial capability, business licenses or certifications, or other necessary qualifications.

If you're working without a broker, you'll need to verify facts on your own, probably with help from your accountant and attorney. This involves requesting copies of bank statements, financial statements, professional licenses and certificates, and other documentation.

Qualified, serious buyers will be prepared for such requests, though often they'll feel comfortable releasing information only after signing mutual non-disclosure or confidentiality agreements. These agreements are part of a trust-building quid pro quo exchange during which you release facts and financial information about your business in exchange for similar information from the buyer.

Step 4: Immediately follow up with hot leads.

When a buyer appears uniquely qualified, financially capable, and a good match with your business offering and sale timeline, issue an immediate response (either directly, or through your business broker).

Pick up the phone.

Identify yourself if your name isn't likely to reveal your business identity. Otherwise, say you're the owner of the business the buyer inquired about. Convey your thanks for the inquiry and your preliminary belief in the buyer's suitability with your offer.  If you desire to maintain confidentiality, make sure your phone number won’t be visible to the prospect when you contact them.

Confirm and deepen your impression about the buyer's qualifications and capabilities.

Without revealing your business identity, establish rapport through a conversation that provides and obtains information in an answer-to-answer trade off. If you want to learn more about the buyer's cash condition, offer some financial information first. For example, roughly describe your business size before explaining that the sale offering requires a specific amount of cash down at closing. This gives the buyer some information before requesting information in return. Expect as many as half of respondents to drop out at this point. Either they won't have the money or experience to continue discussions. Better to learn that now than later.

Email or fax your selling memo summary.

If you believe the buyer is an able and likely buyer, share your selling memo summary - but with all identifying information deleted.

Schedule a meeting.

Keep your business identity confidential by meeting off premise, preferably in the office of your accountant or attorney. Explain that you'll begin the meeting by signing a mutual confidentiality agreement after which you'll be able to share specific facts about your business.

  • If the buyer wants his or her accountant or attorney to attend this first meeting, welcome the additional attendees as a demonstration of the buyer's high interest.
  • If lack of proximity makes a personal meeting improbable, set up a phone meeting to be attended by you, the buyer and your broker, accountant or attorney. Before the meeting, exchange confidentiality agreements.
  • If the buyer seems to need time before scheduling a meeting, offer to share the selling memo summary and to follow up in a day or two to schedule a meeting.

Step 5: Obtain additional information from possible but not-yet solid prospects.

If a prospective buyer appears somewhat qualified and capable to buy your business but you have reservations, hold off or get more information before sharing additional facts.  Remember that you are in control of the process, and you can disclose information at you desire.

  • If you think the inquiry is from a competitor, set the response aside unless you strongly believe that the competitor may be serious about purchasing your business. If so, proceed very cautiously, first by working to learn the prospect's identity and then by requiring a confidentiality agreement. Even with confidentiality assured, require the competitor to share the identical level of information about the competing business that you reveal about your own business.
  • If have questions about the buyer's financially capability, require information about how the buyer will finance a purchase before revealing any additional information. "Thank you for your interest in my business and sale offering. I look forward to providing more information. First, would you please reply with information about the size of business you're looking to acquire, your cash investment plans, and your ability to back a loan, if one is necessary, with collateral security?"
  • If you question the buyer's business qualifications, move on unless your business requires no particular expertise and the buyer's financial condition is such that you'll be paid off on closing day. That's a rarity, for sure, but it will become a requirement if you sell your business to a person whose ability to run your business successfully is in question.

If you're using a broker, that person will handle pre-screening activity so you don't waste your time or divulge the sensitive facts about your business with those who aren't likely to buy. If you're not using a broker, it's your job to be sure you obtain the information necessary to answer the questions in the Step 1 chart with "yes" replies before revealing your business name, presenting your offering, and building the trust required for a buyer to make a purchase offer.

In next week’s installment of “Selling Your Small Business” we’ll discuss how to build buyer trust.   

Editor’s Note: This article is the sixteenth piece in a series taken from BizBuySell.com’s Guide to Selling Your Small Business. The guide is a comprehensive manual to help small business owners maximize their success when the day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.

Last updated: Jun 27, 2012

MIKE HANDELSMAN | BizBuySell.com

Mike Handelsman is group general manager for BizBuySell.com and BizQuest.com, the Internet's largest and most heavily trafficked business-for-sale marketplaces.




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: