Whether you post a phone number or e-mail address in the ad or you received a Business Buyer Registration Form, - your first meaningful discussion, and your first opportunity to qualify the small business buyer will usually be by phone.
The main objective of this initial phone conversation is for you to learn as much as possible about your prospect so that you can determine if it’s worth your time to actually to take the next two steps.
Those two steps by the way, are:
- Have the prospect sign a Confidentiality Agreement (also call a Nondisclosure Agreement or NDA).
- Present the buyer with your Selling Memorandum.
But you will only proceed with these steps if you like what you hear during your initial contact with the buyer.
How to Control Your Initial Contact with The Buyer?
As mentioned often on this site, qualified prospects will have many business opportunities to choose from. They’re busy people. Realize that a good prospect will try to pre-qualify you over the phone just as you are doing to him.
To get control of the conversation you need to be the one who is asking the questions.
If you allow yourself to be used like a reference librarian, the prospect will ask a long list of questions, getting as much detail as he can about you and your business. Many times this will lead to your confidentiality being compromised.
When a prospect asks a question, acknowledge it, give a brief answer and immediately ask a question of him.
If they insist on knowing specific numbers about profits and expenses or information about customers, let them know that you are not comfortable giving out that information just yet, but you do have a Selling Memorandum that you will send once you receive a Confidentiality Agreement.
An experienced and professional business person will understand and accept this request.
If you allow them to, prospects will just ask a list of questions until they have all the information they want. When this happens the prospect often loses interest or finds more reasons not to proceed than they do to go forward.
Remember: the person asking the questions is the one who is in control of the conversation. So, here is a list of some of the questions you’ll want to ask a potential buyer in that initial phone conversation:
- Tell me about your business background and experience. Why are you interested in owning this type of business?
- How much research have you done on the industry?
- How long have you been considering a business of this type?
- What is your time frame for actually buying?
- Are you currently employed?
- Have you ever been in business for yourself? If so, why did you get out of that business?
- Do you have a partner or spouse who will be involved in the buying decision? (If they have a spouse, try to get them involved as much as possible. If you meet the buyer in person, do everything you can to get him or her to bring their spouse/business partner/investor. Later on, when they are making their final decision, you want to have all these people well informed.)
- Do you have at least xx amount of cash available to invest now? (Having enough for the down payment isn’t enough. The buyer will also need enough money to cover closing costs, working capital and reserves. So add your best estimate for these things to your down payment and make sure the buyer has it, or at least can come close)
- In the first year, how much profit will you need to take out of the business to live on? (You will have a good idea of what is realistic, if the prospect needs a lot more profit to live on than the business can generate than you know you don’t have a good prospect)
- Have you seen your credit report recently? Is there anything negative on it? (Don’t ask the more general question "Do you have good credit?" People will answer that question "yes" no matter what the truth is)
- If we come to an agreement on price and terms I’m sure you’ll do a thorough due diligence investigation of my company. Likewise, when the time comes, I’ll want to check your credit, work and character references. Is that O.K. with you?
With these last two questions what they say is as important as how they say it. Nervous or noncommittal responses can mean they are not prepared or have something to hide.
Questions 1-3 are open-ended questions that will get prospects talking about themselves. Let them talk. You never know what you’ll learn about their major motivations and their level of preparation.
By now you should have at least some feeling for the viability of this buyer.
Be Prepared to Answer These Questions
In fairness, you will have to answer a few questions from the prospect. After all, he won’t take the time to move ahead without any information.
Explain the absolute necessity of confidentiality, tell them you have prepared a Selling Memorandum which they are welcome to read after signing the NDA. But you can give some general answers to the most obvious questions.
Here are some questions you should be prepared to answer when you first talk with your prospect:
- Why are you selling?
- What is your price? Will you finance? What down payment are you looking for?
- How long has this business been in existence?
- How long have you been the owner?
- Will you stay on for a training period? / Will you be available after the sale for consultations?
- How much income can a new owner expect in the first year?
- What are the opportunities for growth? / Why is this business unique or special?
Much of this information will have already been provided in your advertisement, but if you are talking to a buyer who was referred by your accountant, lawyer or some other source, this may be new information to them. Still you should try to answer these most basic questions without divulging any confidential information.
Question #1 is perhaps the most important question. A lot of the advice buyers read and hear tells them to be skeptical of an owner’s reasons for selling. After all, why would anybody want to sell a thriving business?
Buyers don’t have the right to know all the details about personal issues like health or a divorce, but you do need to have some prepared response to this question (health, retirement, pursuing new opportunities) that sounds reasonable and positive.
Hopefully question #7 will be the focus of the entire conversation. If you haven’t already done so, take some time right now to list some of the positives about your business.
Video: Qualifying The Small Business Buyer | thebizseller
Taking The Next Step
After answering a couple of questions, try to get an email address where you can send the confidentiality agreement and your "Buyer Information Sheet".
Let them know that once you have received these forms, you will send them your Selling Memorandum with more detailed information.
Any viable, professional and reasonable candidate should be perfectly agreeable with this process.
Anyone who wants you to give them detailed and personal information about your business without signing a confidentiality agreement is being unreasonable.
If they are unreasonable now, they will be that way throughout the entire process.
You can save yourself a lot of time and frustration by cutting them loose right now.
One Other Piece of Advice
In all your phone conversations take notes. Your prospects will give you clues on how to sell them – if you get them talking about their goals and priorities.
It may be weeks before you actually meet in person and you’ll forget too much valuable information in the interim if you don’t take notes.
Notes about what?
Their goals, their aspirations, their experience, the names of their spouse and children, why they want to own their own business, those aspects of your business that most interested them etc. etc.
The selling process begins the moment you first speak with your prospect. Start to learn as much about them and what makes them tick as you can. It will pay dividends as you move into the negotiating phase of the sale.
More on the topic:
- How to Qualify Prospective Buyers
- 8 Reasons to Run a Background Check When Selling or Buying a Business
About the author: Christopher D Childs works as a content writer for https://resumewriterreview.net. It gives him an opportunity to improve his critical and creative thinking skills. Moreover, he keeps up with modern tendencies of employee engagement, motivation and management.