Questions a Potential Business Buyer Will Ask
Before selling your business, there is some prep work that needs to happen. A buyer will come with plenty of questions and if you don’t have the answers for them, they may not buy. Potential buyers want to know they are buying something prosperous. So before selling your business, ask yourself, what would you want to know about a business before you bought it? What questions will a potential buyer ask about your business?
Why Are You Selling?
There are multiple reasons someone might sell their business. A common misconception is someone is selling their business because it is going down or not successful in ways they had hoped. It’s usually the contrary. Almost all businesses sell when they are in good health. A common reason business owners sell is because they are burned out or ready to retire. In these cases, their business is often doing well. Owning a business is a lot of work and can take all of your energy. At some point, most business owners want to exit.
When answering this question to your buyer, phrase your response in a positive light. Saying, “I’m burned out” is not the way to attract a buyer. Explain the years you have put into the business and how you are ready to turn a new page. Talk of the amazing things that have come from owning this business but that you are ready to start anew. This may mean a new venture or retirement.
What does the Owner’s Involvement After the Sale Look Like?
Taking on a new business can feel like scaling a mountain. There is so much information to absorb and processes to learn when acquiring a business. One thing buyers look for is a seller who is willing to help with the ownership transition.
This may or may not be over an extended period of time. However, most buyers will at least want a quick run-through of processes, paperwork, and a layout of the important details. Some buyers might not request the owner’s involvement but it shows your willingness to help ease the transition. For more information see Transitioning Your Business to a New Owner.
For buyers who obtain an SBA loan, often the seller will stay on for a period of time. However, the SBA limits this timeframe to one year.
How Dependent is the Business on the Owner?
Some businesses are completely dependent on the owner. These types of businesses are less valuable because they can’t run without the owner. When selling your business, prep the business to be functional on its own. Provide proof of that to the buyer. Be able to discuss the operations of the business, who does what, and how things get done. Transferring ownership has a lot of moving parts, be sure the transition can be as smooth as possible. This includes taking steps to Reduce Owner Dependency.
What do Ownership Earnings Look Like?
While some may not like to admit it, they are in it for the money. No one wants to buy a business that is going to cost them more than it’s worth. Buyers will most likely ask for an SDE, the seller’s discretionary earnings statement. This statement also details your income with expenses (recurring and discretionary) taken out. If you are not willing to talk about this when selling your business, you probably won’t sell. Being open about the success of your business will help the buyer decide if it is the right fit for them.
Another aspect of disclosing your income is showing more than one year’s statements. Providing an income statement from 3-5 years ago shows trends, rate of growth, and a realistic expectation for the buyer. Prepare these statements before a potential buyer even asks for them.
A business buyer will often obtain a business valuation that breaks down how the business is doing financially. This includes cash flow, expected future income, and the seller’s discretionary earnings. As a seller, knowing this information as well can help when negotiating a purchase price.
How do you Justify Your Asking Price?
This is where Peak Business Valuation, business appraiser, comes into play. Receiving a business valuation is critical. The main reason buyers walk away is over price. If you can’t justify your asking price, they won’t buy. A business valuation is a report of your company’s worth. It takes information from revenue, cash flows, taxes, and debts to create a detailed report of what the company is valued at and why. The facts and figures set the bar for what you should and can ask for when selling your business.
A business appraisal will help both a buyer and seller feel confident they are getting a fair value for the business. In most cases, both parties will obtain an independent business appraisal.
Peak Business Valuation, business appraiser, would love to chat about what we can do for you and your business. Our valued professionals appraise businesses daily. Our goal is to help individuals feel confident in their purchase or selling decisions. If you have any questions, specific or general, feel free to reach out by scheduling a free consultation!
Summary
Being prepared when selling your business will help the process go smoothly and quickly. Put yourself in the buyer’s shoes. Know what questions they may ask and be prepared with an answer. Have the appropriate financial documents ready. Be transparent but shed light in the most positive ways possible. And obtain your own business valuation so you are prepared to justify your asking price and negotiate a purchase price.
To begin the process of selling your business, feel free to reach out to our professionals about getting a business appraisal. Our credentialed business appraisers at Peak Business Valuation will help you feel confident when selling your business. We look forward to hearing from you and are happy to answer any questions you have! Schedule a free consultation below.
Schedule Your Free Consultation Today!
