Examining the Mindset of a Serious Buyer
Selling a business is serious business. The process is complicated, and there are several steps that need to be taken in order to complete a successful transaction. Ultimately, it comes down to finding the right buyer who is qualified, motivated, and willing to pay the price you are asking (or something close enough to it to be acceptable). To accomplish this, you need to get your business in front of as many qualified buyers as possible and make it attractive to these buyers.
As a business owner who is thinking of selling your business, your perspective is understandably much different than that of a buyer. However, if you want to get your business sold at an acceptable price and in a reasonable time frame, it is important to step into the buyer’s shoes and try to look at the transaction from their point of view. What is most important to a prospective buyer? What will make them want to choose your business over the others that are available?
Understanding the perspective of a serious buyer will help you better understand what issues may need to be addressed in order to attract the right prospects.
Here are five areas to consider when examining the mindset of a serious buyer:
The serious buyer will want to know your industry: When someone wants to buy a business, one of the first things they look at is the industry in which you are. A buyer who is serious is someone who is already passionate about your industry and may have some experience in it (although their motivation could either be because of what the business does or the profit potential or both). Whatever the case, the buyer will want to know more details about your business, the industry as a whole, strengths, weaknesses, competition, industry trends, etc.
The serious buyer will want to know about your employees: If you were going to buy your business, one good question you might ask is how well can the business function without you, the owner, being there? Do you have quality employees that can effectively execute their tasks with limited supervision? How much do you pay your employees? If the buyer thinks your wages are too low (based on what your competitors pay), they may be concerned about high employee turnover and the potential lack of stability this may bring.
The serious buyer will want to know about cash flow and trends: Naturally, one of the most important things the buyer will want to know is how much cash flow and profit the business makes. If you were buying a business and this was going to be your primary source of income, you would want to know what kind of lifestyle you could afford as the owner. But while the profit you are making today is very important, equally important is where your business is trending. Have sales been increasing or declining recently? If sales and profits are on a downward trajectory, this will certainly be cause for concern for any serious buyer.
The serious buyer will want to know about looming capital expenditures: Employee stability and healthy profits are major concerns, and another one is what major expense you may have on the horizon. Hopefully, you do not have any legal problems or litigation pending. Beyond that, the buyer may want to know about your machinery, equipment, and technology, and whether any of this will require upgrades in the near future in order to stay competitive.
The serious buyer will have tough and detailed questions: The main difference between a casual buyer (i.e., “tire kicker”) and a serious buyer is the type of questions they ask. A qualified buyer will get into the details of your business (once they have signed an NDA and reached this point in the process of course) and ask about issues such as your agreements/relationships with vendors and suppliers, the strengths and weaknesses of your employees, opportunities for future growth, the biggest challenges your business is facing, and many others.
Preparing your Business to Attract the Right Buyer: When you are getting ready to sell your business, you need to step into the shoes of your ideal buyer. Think about what would be important to them, and what kind of questions you would ask if you were the one looking to buy your business. To help with this process, it is best to work with a professional business intermediary. Also known as business brokers, business intermediaries have extensive experience with the selling process. Their job is to bring buyers and sellers together, and their experience gives them unique insights into what buyers are looking for.