Selling Your Business? Be Ready for These 8 Questions
Selling your business is a detailed process, and it is one you want to take great care in handling. As you seek potential buyers, you want to be prepared for whatever might come your way—including probing questions from interested acquirers.
Every potential suitor will be different and will have a very specific list of questions and concerns. As a business owner, it is important that you’re prepared to be grilled on every aspect of your business. There are 8 common questions that you can expect during prospect meetings and advanced preparation can ease some of the tension when in the hot seat.
No. 1. Why are you selling?
Detailing why you are selling your business is an obvious first question, but it is one that is often challenging to answer. It is important that the buyer believe the company’s future is bright, but you must articulate why you are separating yourself from the potential success. Prepare a solid response that explains your departure and underscores the business’ prospects for the future.
No. 2. What does it cost to acquire new customers?
For the business to continue to grow, it must continue to attract new customers, which often has a fixed cost associated. A potential buyer will want to know if there is an existing economical and scalable formula to securing new customers and clients. Analyze the costs and display them in a clear and concise manner.
No. 3. What is your market penetration rate?
Any potential acquirer wants to see ample room for future growth. They will be interested to understand the current market, as well as the size of the potential market and determining how much has yet to be harvested. Accurately describe current standings and chart future business growth.
No. 4. Who is on your team—and who is most critical?
You know that your employees are your lifeblood and it’s important that a potential buyer know the same. They will be interested to know your company structure, particularly identifying key personnel and which team members will need to be motivated to stay with the company post-sale. Note primary players and detail how other team members contribute to the end goal.
No. 5. Who is your core customer base?
A business needs to know its customers well in order to thrive, and a potential acquirer will want to get to know them as well. Be able to clearly define and describe your core customer base, including the characteristics that drive them to your business. For potential buyers who already own a business, they may also be looking for potential synergies between what you sell and what their business offers. Paint a clear picture of your customers and their needs and illustrate how they may align with those of the buyer.
No. 6. How do you make your goods or services?
Any potential buyer will want a detailed account of how the product is brought to market, from start to finish. They will be looking for unique aspects of your formula and will want to know of any proprietary systems that would be difficult for a competitor to replicate. Create a detailed overview of the complete production process and identify potential challenges.
No. 7. What makes your offering unique?
A potential buyer will be taking a very close look at your product offering, including current and future competitors. They want to understand the moat around your business to anticipate if new competitors may expose themselves in the future. Clearly identify what you have done to safeguard your business from competition and isolate potential threats.
No. 8. What does the back-office setup look like?
While you know your business like the back of your hand, your incoming buyer will not. A potential buyer will need to know the ins and outs of your financial stream—bookkeeping practices, billing software, how customers pay and how suppliers are paid, among other aspects. Thoroughly explain how you manage your business’ finances and display how their process might be integrated with your business’ systems.
Meeting with potential buyers is one step in the multi-faceted exit planning process. Use each meeting as a guide to perfect your approach to the sale and ensure ultimate success. A properly executed exit plan will ensure the best financial positioning post-sale.
Mark Tepper, CFP, is president and founder of Strategic Wealth Partners in Seven Hills, OH, a comprehensive wealth management firm that specializes in planning for small business owners. Tepper has conducted extensive research with entrepreneurs, particularly examining the challenges they face with proper valuation and exit planning. For more information, please visit: www.swp-ohio.com