FAQ’s From Business Buyers
Keywords: business broker, merger and acquisition, sell a business, succession planning, investment banker, M&A
An area of great concern to our business selling clients as we help prepare them for a buyer visit is what questions the buyer is likely to ask. Below are a representative set of questions that we have encountered. This article will not provide you with the answers because they will vary with each business seller. However, we will provide a buyer motivation framework so that you can answer the questions with this common framework in mind.
Buyers want to eliminate as much risk as possible because an acquisition, by its very nature is a risky business decision. A buyer does not want to discover or be confronted with a bunch of Gotcha’s after the check has cleared.
As a seller, you must never convey the attitude of this place is falling apart and you can’t wait to dump this dog. Your reasons for selling are very important and should focus on estate planning considerations, retirement and diversifying my assets or my favorite, we just do not have the resources to take advantage of all the market potential that we have created.
Another theme is that you want to convey how strong your staff is. You want to portray how the account relationships are managed by multiple staff members. You need to communicate just how widespread the intellectual property is dispersed among the staff. The owner has an easy job because the employees handle all of that.
Future potential and momentum are important. Make sure you can articulate the opportunities for growth that you have identified, and are either pursuing now or are planning to pursue if you had more resources. So keeping these themes in mind, be prepared to answer many of the following:
Why are you selling your business?
What are the last three year’s net operating profits?
Who are your biggest competitors?
What are your industry ratios and trends?
What do you think I can do to increase sales and profits?
Why are you not doing to increase sales and profits?
Will you hold financing for the purchase of the business?
Will you be willing to stay with the business for a period of time after the sale?
Will you agree to a covenant not to compete?
Will the business sale include the transfer of real estate?
Don’t you have children to transfer your business to?
Do you want a corporate stock sale or asset sale?
Who knows that the business is for sale?
Who will I be negotiating with?
What is your timetable for completing the business sale?
What do you do everyday?
Do you anticipate any problems with me getting credit from your suppliers?
Do any of your suppliers represent more than 10% of your purchases? If yes, who are they?
What is it that you like best and least about the business?
What do you believe is the profile of the ideal buyer for this business?
What can be done to build the business?
How long will it take me to really learn this business?
How long can I count on you to train me after the sale?
What keeps you up at night about the business?
What are the details of the lease? How long? Any options? Do you anticipate any problems with the landlord assigning it to me or entering into a new lease?
How much vacation do you take (not that you’re looking for time off, rather you want to know if they have adequate staff that will allow you time away)?
Are you the only owner?
Who are the employees? Any manager in place? Are there any employees that are critical to the business?
Are you willing to finance part of the purchase? If not, why?
Net revenue seemed to experience a huge decline last year versus previous years. What happened?
How much of the revenue is the owner responsible for?
How much of the revenue are the other business development people responsible for?
What are the titles and responsibilities of each of the employees? Please state how long each has been with the company and what they are being paid, and how they are being paid. If they have success-based compensation please let me know the actual for the past three years for each person.
What are their revenue production goals? Other goals?
What does their five-year plan look like going forward?
Why is the owner selling the business?
Can I see actual P&L statement for the last five years?
Is there one person in house today that would be interested in and capable of running the day-to-day operation while keeping up personal production and receiving an override and perhaps equity stake in the business?
Is the owner open to an acquisition plan that would be tied into continued success of the firm over the next five years?
Do the employees have non-compete agreements with the company? If so what is the nature of the non-compete? If not, why not?
Is the current owner willing to sign a non-compete agreement as part of the acquisition?
What is the owner’s salary, bonus, fees, and commissions on an annual basis and over the last five years?
How much of the business are we likely to lose if the current owner retires or discontinues affiliation with the company? How would the owner propose to mitigate the loss for a new owner?
This list is by no means exhaustive and there may be questions that arise that are unique to your particular business or industry. However, if you can answer these questions with an awareness of the buyer’s risk mitigation approach, your firm will be viewed as a better acquisition target. We are in no way suggesting that your answers are not truthful, we are just suggesting that you surround them with an attractive packaging.
Any answers that are found to be inaccurate during the due diligence process will result in punitive adjustments to purchase value.
If you remember the old interview question, “What would you say is the biggest negative about your business approach?” Your positive answer was something like, “Well, I am so driven to be successful that I am sometimes impatient with people that do not share my same drive or capability.” That’s how we are suggesting you approach this. So for example, you have lost a few deals to XYZ Big Company. How will that impact the business going forward? Well, the competition from the XYZ Company is a good news bad news situation. The bad news is that they are a very tough competitor, but the good news is their attention to our space reinforces our view of the long term potential. How’s that for positive?
Dave Kauppi is president of Mid Market Capital, Inc. MMC is an M&A advisory firm focused on middle market strategic business sellers. Dave a licensed business broker and a member of IBBA and the MBBI. Contact (630)325-0123 davekauppi@midmarkcap.com or www.midmarkcap.com
Previous Articles Highlighter:
Money In A Whole New Avatar (1)
We may call it the curse of modern life. But, whatever we may say, the fact is that living without money is an impossibility. Money has seen a lot of historical developments.
Lies Will Not Help Loan Applications (2)
"Fraud data sharing means that such lies are easy to detect and, far from enhancing an applicant's chances, will be detrimental to their application". The advice from Cifas follows research from the service which revealed that two-thirds of those who lie on applications for secured loans, insurance and credit cards are men, with the majority of application fraudsters aged between 26 and 40.
Forex Trading - What Are The Best Strategies? (3)
When it drops below the SMA it's a signal to stop and reverse the trade. The price of the currency you will notice constantly crosses the SMA, therefore using this strategy enables us to basically stay in the game.
Letting Your Property Bear Fruit (4)
That would be an example of terrific investment planning. The income that you would get from either renting or leasing your home would go far in trying to recover the investment that you made.
Changing With The Ever-Changing Times (5)
It is the credit card. Clearly, the credit card today has virtues that are not possessed by money. It is compact and can be carried any and everywhere.
Enlightening The Exceptional And The Ordinary (6)
At times, the immense expenses that are involved in taking up a certain course dissuade meritorious students who go on to take up less notable courses elsewhere. Thankfully, times are changing.
Stocks: How Stops Help You To Make Money In The Stock Market (7)
This means that once you have a profit, you move your stop nearer to the current price so you`ll stop out with most of your profits intact if the position moves against you.
Low Minimum Credit Card Payments Lead To Debt Sentence (8)
The expert was speaking after research from the firm revealed that 21 million consumers owe 100 billion pounds more than they estimate. Abbi Rouse writes for All About Loans.
Introduction To Currency Trading And Forex Trading Systems (9)
Speed is very vital in forex trading systems. Every second counts for it relies on moving averages. Learning the tricks to currency exchange takes expertise, knowledge and industry experience.
A Guide To Bad Credit Car Loans (10)
Sean Patrick is an automotive finance specialist with over 5 years experience in the Auto Finance world. Currently he is working with the company Car Loan Today. You may view his web site and tips here: www.carloantoday.ca
Career Development Loan Applications Still Credit Checked (11)
"A credit score in the past is usually a good indication of what's going to happen in the future, so if somebody's been a poor credit risk previously, just because they're taking a course doesn't necessarily mean they're going to be a sound credit risk in the future.
Who Else Wants To Understand The Secrets Of Forex Charts And Spreads? (12)
This makes comparing brokers difficult. Some brokers actually offer fixed Forex charts and spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed Forex charts and spreads are traditionally higher than average variable spreads, you can end up paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.
Discover Tips And Tricks To Explode Investment Club Market Profits (13)
You may want to start by learning about the different types of stock analysis, and getting a feel for how the many different tools are used. There may be times when you want to ask a guest speaker to your meetings to give you first hand experience of the investing world.
New Discovery Gives You A Mini Forex Trading Advantage (14)
The positions that you have in your account could be partially or completely liquidated if the available margin in your account falls below a predetermined amount, and you may not get a margin call before your positions are liquidated.
Retiring In The United States (15)
California, Oregon, Washington. Always staying away from the big cities and resorts, of course. Los Angeles and San Francisco can be as expensive as any city in the country, but little Grass Valley, tucked up in the High Sierras, is a bargain paradise indeed.
What Green Building Means (16)
Landscaping: Look for Xeriscaped yards and common areas with plants that require little watering. Consider getting rain barrels (many cities sell them through their water and energy programs) or converting your outdoor water system to "graywater" (which involves using recycled water from dishwashers and washing machines to water your lawn or wash your car).
Prioritizing Your Retirement (17)
One hundred dollars a month is a fortune in the eyes of the average European. Actually, in most European countries the working man does not make that magnificent sum even while employed a full working week.
The Origin Of The Stock Market Formula (18)
As we have seen, one of the characteristics of formulas is that they do not aim for one hundred percent accuracy, and always make allowances for the probable, while hedging against the possible.
Weighing Your Personal Situation When Investing In Stocks (19)
The story is told of the two salesmen who met in the club car on the train. "How's business?" asked the first. "Oh, very good," said the second, "and yours?" "Fine, fine," said the first.
How To Find A Broker For The FOREX Trading Market (20)
Many brokers will offer you two or more types. The smallest account is known as a mini account and it requires you to trade with a minimum of around $300.
Newer Articles Highlighter:
Making Cold Calls Count (1)
Try checking out the various kinds of deals available in the markets. Then, compare them with the one offered by your friendly cold caller. Quite often, the cold caller is armed with an even better offer.
Investing In An Investment Plan (2)
That is why we need to have an investment plan. What I have often noticed is that although many of us are keen to have an investment plan, we are unwilling to actually make things happen.
Celebration, Jubilation, And Renovation (3)
Keywords: secured loans, home improvement loans Weddings are a time of great celebration for everybody. It is a wonderful sight to see your own son or daughter decide to tie the knot with their partner.
Announcing How To Monetarise Stock Broker Career (4)
This is what trading is? Secondly, you should have great ability to absorb data and analyze it enough to give the correct information to your client. A keen eye on every detail of the stock market as well as your client helps a lot in this financially rewarding industry.
How To Find A Credit Card Debt Settlement Solution That Works For You (5)
Be reasonable, when you see ads that promise they can help you settle your debt in one day, overnight, etc. you must realize that these claims are simply not true and companies that use these tactics are not the type of help that you need.
Bad Credit Consolidation - The American Way? (6)
Bad credit has reached epidemic proportions in the United States, and as a result many Americans are resorting to bad credit consolidation. Although bad credit occurs for various reasons, such as late mortgage payments or inability to pay school loans, the vast majority of individuals are in trouble due to mismanagement of credit cards.
The Advantages Of Debt Consolidation Loan (7)
It is entirely possible to use this plan to help seek a more stable financial standing. Finding a reputable consolidation company, however, is paramount. Take as much time available to research the many options.
Surviving Mounting Medical Bills (8)
This is very evident in the way in which large numbers of people now flock to car dealers with their newly acquired car loans for support. If buying a car has become such a cakewalk these days, there is no reason why it should be any more difficult to come by a personal loan for other expenses.
Loans Consolidation Debt As Finding Your Answer (9)
When consolidating loans, credit card accounts are often closed to prevent further use. Loans consolidation debt does come with certain disadvantages. You are likely to be committed to paying off your debt for a long time.
Facts About Credit Cards Debt (10)
Many argue that credit cards are more trouble than they are worth. Yet, millions of people around the world still use them. Many then make their situation worse by choosing to take out loans for debt relief when they owe too much and can't make the payments on credit cards.
Studying Student Loans Consolidation (11)
It will merely be set at a fixed rate. Keep in mind that all of your previous loans will be weighed to find an interest rate that is appropriate in light of the current rate.
Accounts Receivable Factoring- An Alternative To Bank Financing (12)
Invoice factoring is the purchase of a business accounts receivable at a discount. Rather than wait 30 to 60 days or longer for the receivable to be paid, the factor purchases the invoice and advances most of the balance up front.
How You Can Make Money Trading Forex While Working A Day Job (13)
I know, I have been there! Let me say one thing before we go any further, if you can not make consistent money on the daily charts then you won't be able to do it on the lower time frames!
Settlements, Notes, And Lotteries OH MY (14)
Or just to have enough money to take an amazing vacation Receiving a lump sum installment basically means that a one time amount will be paid to the recipient instead of breaking the the total of such monetary instrument down into multiple payments over an established period of time.
Britons Must 'Learn' To Cut Spending As Interest Rates Predicted To Rise (15)
In a study carried out by the Independent on Sunday, economists from Ernst & Young, HBOS, JP Morgan, Barclays, Royal Bank of Scotland and Merrill Lynch were reported to believe that the Bank of England's monetary policy committee (MPC) will increase the base rate by at least a quarter of a percentage point before the end of this year, which consequently could increase pressure paying back secured loans for a number of consumers.
Read The Fine Print In Equipment Lease Contracts (16)
Computers and other technology products need upgrades often. You need strong lease language if you want the lessor to pay for upgrades, adding costs to lease payments. Much the same holds true for alterations and modifications, which leasing companies usually accept when they're easy to remove.
UK Loans Cheapest In The World (17)
In a report carried out by independent economic consultancy Oxera as part of the BBA's annual appraisal of the UK loans, credit card and current account market, it was found that Britons have access to some of the cheapest financial products in the world.
Finance - How To Keep Up Monthy Payments (18)
Paying off more than the minimum amount when it comes to loans and credit cards will reduce the length of time you have to pay on the loan or credit card it will also help your credit score if the loan is paid off on time and the repayment deadlines are met each month.
Borrowers In Southern England 'Face Increasing House Costs' (19)
We call on the government to raise the stamp duty thresholds and the inheritance tax threshold in line with past increases in house prices over the past decade. We believe the government also should commit to index link all property related tax thresholds to house price inflation in the future".
Introduction To Mutual Fund Investing (20)
The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding. As with stocks, the price fluctuates on a daily basis and it can be sold just like any other security.