Initial interest and purchase offers can be exciting, but unless your potential buyer has the resources and capability to qualify for the purchase, you may not really have a sale on your hands. It’s therefore important to know and understand what buyers with “follow-through” potential look like. In order to do this, you should establish a screening process well in advance to protect you, your business, and your time.
Remember, discussing the business in detail with prospective buyers will take you away from your day-to-day responsibilities, so you’ll want to avoid wasting time. Of course, it is totally fine to provide general information about your business but not any granular details until you find out who is on the other side of the table. Understand that while it is important for the buyer to screen businesses, it is equally as important for you, the seller, to screen buyers before travelling too far down a given path.
In this post, we will discuss how to best screen buy-side inquiries and what to look for in a qualified buyer.
Protecting Confidentiality
The efforts to sell your business should remain confidential; and this goes deeper than simply signing a Non-Disclosure Agreement- it means finding out who the buyer is before disclosing who you are. Buyers have nothing to lose by stating who they are and why they are interested in your business. So, if they are not willing to share information, why should you?
See also our in-depth article about confidentiality and how it is crucial to getting a deal done.
Ask Questions
Take control of the conversation and assume a position of authority- albeit while still remaining agreeable. Exercising your authority is a way to demonstrate that you are not looking to talk to just any prospect, but rather that you want to talk to someone who’s a good fit. It’s important to realize that all prospects are entering your ecosystem, so it’s crucial to understand who you are letting into "your home". Keep in mind, there are no bad questions to ask- as long as they are relevant. Start with the basics:
- Tell me about your professional background.
- What interests you about this opportunity?
- What is your timeline for getting a deal done?
- How long have you been looking to buy?
- Why is this the right time in your personal/professional life for such an acquisition?
- How is your past experience going to help you run this company?
- What are your plans after you complete this transaction?
- What are your goals for this process?
Lastly, and perhaps the most important question of all gets its own section within this article...
Are Their Finances In Order?
How a prospect intends on financing a purchase is perhaps the biggest indicator of a serious buyer. If the buyer is planning on obtaining a bank loan, being prequalified is a good sign and means that the prospect is in a good position to obtain bank financing relatively quickly.
To learn more about this, refer to our article about the fundamentals of the SBA Loan.
With that said, a prospect doesn’t necessarily need to be prequalified to be considered a serious contender. There are other ways to prove someone has the ability to execute a purchase. Although cash buyers are certainly less common, documents such as net worth statements signed by a CPA or an attorney can be another way for the prospect to prove their financial capability.
Of paramount importance is that you, the seller, have your company’s documents in order for when the right buyer come along. In other words, a serious buyer will likely have all of their documentation prepared and will be ready to share it with a seller whose business they are interested in purchasing. You must be organized from your end to follow through on the sale.
It is completely normal to request the above information from the buyer. If they seem to be caught off guard by your questions, it could be a reflection of their competency and should be considered a red flag.
What a Qualified Buyer Looks Like
While qualified prospective buyers come in all shapes and sizes, they all contain the following traits:
Determination
Intention of executing a deal. A qualified buyer has the ability to efficiently decide what they want to buy and how much they are willing to pay for it.
Proficiency
They possess the skill set (directly or indirectly) to successfully operate the business moving forward.
Reliability
Someone who appears organized, focused, and ready. The prospective buyer must be someone you envision yourself working with because a smooth acquisition and post-close transition require cohesiveness.
Funds
Whether it is cash, leverage, or investors, a qualified buyer must possess the funds to comfortably complete both the purchase transaction and the transition period.
Interest in and offers to purchase your business can be exciting, but unless your prospective buyer has the resources to qualify for the purchase, the process can be detrimentally unproductive. Ultimately, you need to go with your gut- but, having a screening process in place can save you valuable time and ensure that your needs are met. Once you put these processes in practice, you will be on your way to finding the buyer your business deserves.