04 Jul 2019
At business meetings between the two parties, a lot has been said about what buyers should ask of the business owner to support the buyer's decision to buy the business.
Business owners are sometimes left to feel as if they are the interviewee for a job, and forced to qualify themselves to prospective buyers.
This post is about turning the tables and shifting of the mindset during business meetings with buyers.
You should also take the opportunity to size up the buyers when you meet. PHOTO: Pixabay.com
It is the obligation of business owners to ask questions of the buyers and they should.
The mindset that 'The Customer Is Always Right', an old age axiom may not apply in this situation.
The prospective buyer is not strictly a customer, and you need to also qualify the buyer to avoid heartaches later on and wasting your precious time.
Questions You Should Ask
Some of the questions you should ask are:
1. When inal would you be looking to buy the business? This question helps you to align your hand-over timeline with the buyer's. If the buyer is only willing or able to buy your business in 9 months time, then this could be an issue for you if you want an urgent sale.
This also helps you to filter out those buyers that are still shopping around, and those who are ready to buy now. Buyers that are shopping around will be ambiguous with their answers and you should be able to pick the vibes at these business meetings.
2. Do you have any experience in this type of business? This should be one of your very top questions to the buyer.
If this is a physical business with a rented premise, the landlord will very often require an experienced operator in the business so that the business will continue successfully as an on-going concern (and by extension, the ability to pay the rent)
Even if the business is a franchise and the franchisor holds the head-lease, experience the franchisor may still require some experience.
Also, an inexperienced buyer will require more training and you will need to factor this into the asking price to cover the costs of training the buyer.
3. Will you be borrowing money from the bank to finance the purchase? And do you have pre-approval? These questions are actually quite important. Prior to business meetings, many buyers simply have not ascertain their finances and have not obtained a firm commitment from their bank.
They have worked with fuzzy logic about obtaining their funds or assumed that the bank will handover the money on the wrongful assumption of equity in their family home or investment properties.
You the business owner may be required to provide detailed financials to secure the loan for the buyer. This could prove problematic if your financials are incomplete or the earnings are insufficient for the purpose of the loan.
You should ask this question early-on at these business meetings so as to get notice to prepare the necessary financials & document&, or to filter buyers that are not suitable.
4. How do you intend to finance the purchase of the business, if not from the bank? If the buyer is not accessing funds from a bank, you should clarify how the buyer intend to finance the purchase. This will help you to assess if the buyer is serious.
In a ways, you are also pre-empting the kind of questions the landlord may ask. The sale of the business cannot proceed without the approval of the landlord. You need to know if the buyer is financially abled to withstand the ebbs and flow of the business and still pay the rent.
5. Will you be the sole owner of the business? This question is a sly way to find out if the buyer at the meeting is the decision maker. If the business is a partnership, or if another person is involved, then this may come to light with the question being asked.
You may even ask the question straight up on whether the buyer is the decision maker. This gives you an insight on the buyer/s and whether you should invest further time & effort on th&m, and/or how to angle your business to best attract the buyers.
6. Are you a Permanent Resident or Australian Citizen? Some franchise businesses and landlords require the buyer to be either a Permanent Resident or Australian Citizen. Best to qualify this early on. Non-citizens may have problems unique to their situation, such as international fund transfer limits and visa requirements.
7. Why do you want to buy this business? This question helps to qualify the motivations of the buyer. Some buyers are not genuine - they could be competitors, suppliers, ATO auditors or otherwise tire-kickers. Some buyers are serious in your business, but they may have ideas incongruent with how you feel the business should be managed. For example, you may reconsider the sale if the buyer is likely to destroy your reputation and legacy in the industry. Or they want to fire most of your loyal employees and this may be an issue for you if your employees are mostly family or if you care deeply for your team.
The key takeaway is that asking the correct questions of the buyers at these business meetings will save you much wasted time, money and unnecessary problems later down the track.
For example, you may pay unnecessary legal fees proceeding with the sale when you ought to know that the buyer is unlikely to obtain funding or approval from the landlord.
An unqualified buyer may consume one to three months of your precious time in going ahead with the sale. Precious especially if the lease is already short and the business is approaching expiration date.
You may also overlook opportunities with other buyers in the mean time.
It is in your interest indeed to ask these questions.
Josh Foo contributed to this post.
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