SELLING YOUR BUSINESS A Guide On Meeting Your Prospective Buyers


#sellbusiness #meetbuyers

18 May 2019

[Sydney, Australia] 

Meeting a business buyer for the first time could be unsettling, especially if you fear having to answer 'invasive' questions or having a complete stranger prodding in your business. However, this is the moment where you have to make it count. Your business broker has worked very hard to get a business buyer in front of you and now is not the time to undo all the hard work. It is unlikely that your business broker will be available at all the meetings so it is important that you know how to engage the buyer properly to maximise the likelihood of a sale. Some business broker will attend all the meetings for fear that the vendor may sell the business directly to the buyer in secret without paying the rightful commission. Some may not attend until the sale looks certain. This is a matter of preference between brokers, agencies and their clients. I believe that the first meeting between the business buyer and vendor (business owner) is usually exploratory in nature. Hence, I prefer to allow privacy for both parties to conduct an open and honest discussion without the broker's undue influence or pressure. In any event, you should be aware of the nuances and intricacy of meeting a business buyer.

business buyer

The first meeting with prospective buyers. Photo:

Rapport Matters Rapport seriously matters. Rapport with the buyer builds trust. And trust is what sells your business. You'd be surprised at how many buyers will decide to proceed with the sale because they trust the person that is selling the business. Buying a business involve considerable risks that cannot be eliminated completely by standard due diligence (such as in analysing the financials or looking at the sales report) Trust is a salient but powerful tool that buyers use to assess risk. If you come across as genuine, sincere and approachable, then you will have a much better chance of selling your business. How to build trust and rapport with people is beyond the scope of this article. However, try to be approachable and genuine about the business you are selling. Do not be evasive with your answers or you'd be seen as having something to hide. Think about the likely questions that the business buyer will ask and have good answers ready.  

Organising The Meeting Treat the meeting with the business buyer as seriously as you'd of a job interview, though your standing will be equal to that of the buyer. Choose the right time that allows you to attend to the buyer properly. For example, if your restaurant is at its busiest between 11:30am - 2:00pm, then schedule to meet the buyer at 2:30pm. I have seen buyers arrive at 12:00pm as per agreed by the business owner, and then having to wait 3 hours until 3:00pm before the owner is able to sit down for a proper conversation. If you want to parade how busy your business is to the buyer during peak hour, then please ensure that you schedule enough staff to free you up for a proper discussion with the business buyer.  

Assessing The Business Buyer  

The meeting with the business buyer is a two-way opportunity, meaning that you as the owner of the business can also 'size up' the buyer.  

Your business broker will filter out obvious the tyre-kickers and time-wasters before they get to you. Even so, some buyers may still not be eligible. You should know the minimum criteria for a buyer, and do not hesitate to probe at the meeting to ascertain if the buyer meets the criteria.  

Some of the more common requirements for a buyer are:  

- Experience: Does the business buyer has sufficient experience to secure landlord approval?  

- Non-Current Assets & Real Estate Properties: Does the buyer own any real estate, and how much of this is equity? Some landlords are especially particular about this, especially shopping centres and larger corporation landlords.  

- Finance & Money: How is the buyer going to pay for the purchase of the business? Has the loan already been pre-approved? Can the buyer furnish evidence of the funds?  

- Franchisor Requirements: If the business is a franchise, ensure that the buyer will meet the requirements of the franchisor. For example, some franchisors require that the buyer is an Australian citizen or Permanent Resident.  

You can save yourself much time and money if you size up the buyer early on. The last thing you want is to spend money on legal fees for the Contract For The Sale Of Business and have the sale rejected by the franchisor or landlord.  

Or have the bank decline the buyer's loan application to buy your business.  

Avoid Mistakes Many business owners say the wrong thing or likewise make mistakes at the meeting that damages their prospect of a successful sale. And know your financials well. I have seen too many business owners that do not even know how much net profit or earnings they are taking per week. Your illiteracy on the financials will come across as evasive or untrustworthy. Many business owners shoot themselves in the foot when they understate the net profit, and receives an offer from the buyer based on the verbal disclosure (over the financial documental evidence). It would be difficult to convince the buyer later on of a higher net profit/earnings even if you present extraneous evidence. On the flip side, some business owners will overstate the net profit, but when their financials come under questioning, they are unable to support their claim. In this scenario, the business owner will lose credibility and the trust of the buyer. And trust is paramount to selling your business. In the meeting, show enough of the business to the buyer to maintain the trust but you should not allow the buyer to over-inspect the business.  

avoid mistakes

Avoid mistakes. Photo:

Finally, understand how the sales process work and don't contradict your business broker on the steps moving forward: -- Understand that the deposit will be held in trust by the agency and know the minimum amount required. For my Clients, I will always insist on a 10% deposit or a minimum of $20,000. If the Buyer is unable to furnish the deposit, this is a very clear warning sign that the buyer may not have the money to buy the business or is having mixed intentions. -- Do not offer training or trial before the Contract For The Sale Of Business is signed. See this post on why Allowing The Buyer to (Over) Inspect The Business is a mistake. -- Know the difference between a trial, training and observation when you talk to the Buyer. Many Buyers have a different concept of 'trial' to what you might think it is. Before signing the Contract For The Sale Of Business, buyers would often suggest that they come into your business for 2-4 weeks, understand how the business works, witness the turnover first hand and then if they like what they see, they might just sign on contract. Never sign up for this! Why would you share the secrets to your business, turn away other potential buyers in that time, and give the buyer leverage to bargain down on the price if the buyer finds an issue with the business? A good broker agent should tell you that a trial of the business only occurs after the Contract For The Sale Of Business is signed by both parties and the buyer is legally obliged to purchase the business if during the trial period, the turnover amount meets the agreed target stipulated on the contract. The buyer may also suggest 'training' before signing the Contract For The Sale Of Business. The short answer is no. Training a buyer gives the buyer full access to the business and if you haven't got the sale locked away, then you risk the buyer pulling out, or the buyer reneging on the agreed price. A mild form of compromise you may agree to is an observation of the business. Observation is when a buyer visits the business as a customer only, and sees the traffic flow, or observe the business per se. This may not suit all businesses and is a judgement call. If you agree to an observation, be careful that the buyer does not creep out your other customers and/or engage with customers or staff suggestive of a possible sale. Don't be tempted or persuaded to bare your business too early, no matter how good a rapport you have with the buyer. If you say the wrong things at the meeting, your business broker may have a much more difficult time to realign expectations and procedures with the buyer. This is ultimately bad for your chances of selling the business if buyers believe that they are being 'gamed' for the sale via the sales process and possibly walk away. However, if all goes well at the meeting, then you might just get an offer from the Buyer.  

Josh Foo contributed to this post.