Managing Your Time - Assessing Potential Buyers in Advance

Things are starting to happen now.

You’re receiving enquiries from potential buyers!

However, as with so much else in life, it’s the detail that counts. It’s unwise to to bypass it. And it all starts before you receive initial enquiries and 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 still have a business to run in parallel to the selling process.

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 that weeds out inappropriate enquiries before you commit too much time to them.

So, draw up in some detail a profile of the type of person you feel would be a likely buyer of your business. That is, a typical buying prospect. This is a bit like the inverse of the customer profiling exercise you probably conducted when you first started your business.

There is a useful template on ExitAdviser to help you here. Using this template you can compare the desired profile with enquiries 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 interested in your business at the price you are asking? What is motivating their enquiry?

An indication here might be their expected minimum annual earnings from running your business as compared to what they currently earn, maybe in an employed role.

For example, a high flying financier 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 enquiry could be from an investor looking to buy several small businesses for others to run on their behalf. Perhaps a family member.

Be cautious of enquiries that seem suspicious to you. It may be a competitor doing intelligence gathering. Normally you would not want to give away your trade secrets to them. Of course, competitor enquiries can be genuine. Their knowledge of the market potential can act in your favour when it comes to meeting your price.

A second key consideration is whether the person(s) has the right skills and capabilities to run a business. Have they ever run one before? Do they have prior experience in your business sector as an employee?

This could indicate how serious they are in the first place. It will also be an important consideration to a lender. If the buyer plans to use a loan, push for evidence that this has already been agreed. 

A major factor will always be the ability of the buyer to pay your price. Seek proof, because it’s vital that you don’t invest time and energy with buyers that turn out not to have the finance in place. Discovering this late on in the process could put you back to square one, and could mean 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 an appropriate new owner. Perhaps part of your payment requires you to remain within the business for an agreed period of time, which inevitably means that you are tied to its continuing success.

It’s also helpful to establish how long the buyer has been looking to buy a business, in which sectors, and whether they have made offers to other businesses in the past. 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, businesses purchased are typically located close to the buyer’s base. So it’s very helpful to find out where the buyer is located.

These are just a few ideas.

As all seller situations are different, it’s good to think of your own buyer assessment criteria. Gather as much of this information in advance of any time consuming telephone conversations or meetings. You may wish to score each of these measures on the ExitAdviser template, perhaps using weighting measures to further help your prioritization.

You will now appreciate that these early profiling considerations impact on promotional messages you use in your advertising.

The aim of advertising is to attract the right profile buyer prospects, that are genuinely interested, and that have the wherewithal to make you an attractive offer. Because buyers are often spoilt for choice in the number of businesses available to buy you need to act smarter to attract these serious potential buyers.

Take a targeted, proactive approach perhaps identifying existing businesses with complementary products and services to yours. Then aim part of your promotional campaign at them using an appropriate, tailored message.

The best advertisements have a clear "call to action” that follows a concise, clearly worded sales proposition statement, and the price. Why not ask them to respond by email answering some of 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, if you don’t disclose your identity, you may choose not to respond to the enquiry if they do not meet the criteria in your profiling screen.

Those that do meet the criteria can then be telephoned for further screening.

Where possible, research the potential buyer before the call. Do an internet search, look at social media, check if they are a disqualified Director, if they have a police record, etc.

The more you know about them the stronger is your negotiating position.

When you do make contact be sure to ask questions to get them taking and listen carefully to their answers. Have your profiling screen to hand to prompt you with the right questions.

Be aware of, and manage, the potential risks to your business. 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. It's unlikely that you'll want your staff, your customers, or your suppliers to have any inkling of a business sale at this stage.

Ideally, following the conversation, you'll both know enough to decide whether it’s mutually beneficial to go to the next stage of the process. Typically an initial meeting.

The meeting is your first chance to look the prospective buyer in the eye. The information then gets much more revealing.

It’s advisable that you get an understanding from the prospect beforehand on their desired outcome from this meeting and what specific information they seek. From your point of view it's good to secure agreement from the buyer in advance to commit to a "Yes”, or "No" decision at the end of the meeting on whether to move to the next stage of the negotiations.

No sitting on the fence permitted. This clarity is in the interests of both parties from a time management viewpoint.

To summarise, 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 wherewithal to meet your price.

It’s then that the real negotiation can start.

Posted by Stephen Cunnell