Things are starting to happen now. You’re receiving inquiries from potential buyers!
However, as with so much else in life, it’s the detail that counts. It’s unwise to bypass it. And it all starts before you receive any initial inquiries, even before your promotional activities get under way.
Let’s rewind the clock for moment.
Have you thought about the profile of someone who might be willing and able to buy your business?
The key is to find real buyer "prospects", which means that mere "suspects" need to be further qualified without wasting too much of your valuable time. Remember that you've still a business to run in parallel with business sale activities.
Dealing with non-serious buyers will only frustrate you and, if you're not careful, may lead you to unnecessarily question your asking price.
Beware. There are lots of time wasters out there!
The answer lies in using a process to weed out inappropriate inquiries before you commit too much time to them. This How-to Guide covers the details of this process:
- Buyer Profiling
- Linking to your Promotion
- Telephone Contact
- Meeting with a Prospect
- Taking each in turn:
1. Buyer Profiling
Draw up a profile, in some detail, of a likely buyer for your business. That is, a typical buying prospect. This is similar to the customer profiling exercise you probably did when you first started your business.
Compare the desired profile with the inquiries you receive and make an informed judgement on whether to invest more time with them.
There are a number of profiling considerations. Here are just a few. None of these represent hard and fast rules but they should help to save you time.
Firstly, is the buyer likely to be genuinely interested in your business at the price you're asking? What's their motivation for inquiring, for example, is it to earn a minimum of income?
An indication here might be their current annual income from employed work. Are they prepared to work for less, at least initially?
A high-flying financier, for example, might not be interested in buying and running a local cafe. Equally, someone employed in a low skilled manual job may lack the funds or borrowing capability needed to come close to your asking price.
On the other hand the inquiry could come from an investor wanting to buy several small businesses, with others running them on their behalf, perhaps a family member(s).
Be wary of inquiries that appear suspicious. It may be a competitor doing intelligence gathering. You wouldn't want them having access to trade secrets. However it's possible for competitor inquiries to be genuine. Perhaps they are looking to expand through acquisition. Their knowledge of the market potential could act in your favor when it comes to meeting your asking price.
A second key consideration is whether the person(s) has the right skills and capabilities to run a business like yours. Have they ever run their own business? Do they have prior experience in your business sector as an employee? This could indicate how serious they are in the first place.
It'll also be an important consideration to a lender if the buyer plans to use a loan as part finance. A major factor for you will be the prospect's ability to pay your asking price. Push for evidence that the loan has already been agreed. Seek proof that they've the necessary cash for your required deposit and cash element in the deal.
Avoid investing time and energy with buyers that have little prospect of financing a deal. Discovering this late on in the process could put you back to square one, meaning that other more qualified buyers slip through the net.
One of your exit concerns may be protecting the future interests of your employees by selling to the best qualified new owner. Maybe deal terms require that you remain within the business for an agreed period of time, which inevitably means that you're tied to the continuing success of the business.
It’s also helpful to establish how long the buyer has been looking. Which sectors have they prioritized in their search? Have they made offers on other businesses? These are all useful clues to buyer intention.
Finally, whilst it’s very common for buyers to search on the internet over a wide geographic area, the one purchased in the end is often located close to the buyer’s home base. So it’s very helpful to find out where the buyer is located, and establish the reason why they are looking further afield.
These are just a few ideas. As circumstances will differ for each seller it’s good to think of your own buyer assessment criteria.
Gather as much relevant information about prospective buyers in advance of any time-consuming telephone conversations or meetings. Score each prospect against your criteria using a scale of 1 to 5, where 5 is strongest. If you want to get more sophisticated attach weights to each criteria, again 1 to 5, with 5 being the greatest priority. Then multiply each assigned buyer score with the weighting to give the individual's total score for comparison with others.
2. Linking to your Promotion
You'll appreciate from the first section that these early profiling considerations impact on the promotional messages you use in your ExitAdviser landing page and other advertising.
The aim of advertising is to attract buyer prospects of the right profile that are genuinely interested, with the means to meet your asking price or make an attractive offer. Because buyers are often spoilt for choice, you need to act smarter to attract the serious potential buyers to your business.
You could take a targeted, proactive approach perhaps identifying existing businesses with complementary products and services to your own. A separate campaign using more traditional promotional methods, like local newspaper advertising, could be aimed at them using an appropriate, tailored message.
The best advertisements have a clear "call to action" message. It follows a concise, clearly-worded sales proposition statement, and the asking price. Why not ask them to provide email answers to your key profiling questions? This has the following important benefits.
Firstly, it requires an effort on their part which will discourage those that can’t be bothered. Secondly, where you don’t disclose your identity, you may choose not to respond to the inquiry at all if they don't meet the criteria in your profiling screen. Those that do meet the criteria can then be telephoned for further screening.
3. Telephone Contact
Where possible research potential buyers before calling. Do an internet search, look at social media, check if they're a disqualified Director or have a police record.
The more you know about them, the stronger your negotiating position.
When you do make contact ask questions to get them talking. Have your profiling screen to hand to prompt you with the right questions to ask. Listen carefully to their answers and make a few notes.
Understand the risks, and beware. Remember it’s an unknown voice at the end of the telephone so avoid giving too much information away. Certainly nothing that’s commercially confidential until a Non-Disclosure Agreement (NDA) has been signed. Once you've received the signed NDA you can send the Sale Memorandum, which is likely to prompt further questions from them. Or you may never hear from them again.
Ideally following a further conversation you'll both know enough to decide whether it’s mutually beneficial to go to the next stage and meet.
4. Meeting with a Prospect
The meeting is your first chance to look the prospective buyer in the eye. The information then gets much more revealing. You may choose to hold this meeting off-site as you may not want your staff (or your customers or suppliers) to have any inkling of a business sale at this stage.
It’s advisable to understand before the meeting the prospective buyer's desired outcome and any specific information they want. Also ask them in advance for a "Yes", or "No" commitment at the end of the meeting on whether to move to the next stage of the negotiations. Only allow a "Maybe" on genuine grounds but be sure to agree a short time limit on the extension. This clarity is in the interests of both parties to avoid wasting time.
To summarize, one of the key secrets to selling your business is to have an effective filtering process, so that you meet with serious prospects, with the right profile, and the resources to meet your asking price.
It’s then that the real negotiation can start.