24 Nov 5 Questions That Every Business Buyer Asks
The average business buyer goes into the process with a list of questions to ask the seller. So if you plan to sell your business someday, here are five questions that almost every buyer is going to ask you. In my next blog I will write about questions that buyers should ask, but often don’t.
Why are you selling?
It’s natural to wonder why someone would sell a successful private business. Sellers usually reply with a standard line such as “I’m ready to retire” or “I need to concentrate on my other business interests”. If your business is doing well, it’s important to have an honest answer so that it’s not a red flag that the business may be in trouble or about to come under stress. In some cases you may have taken the business as far as it can go with your skills and capital, and it needs someone else to grow it. If that’s the case, then say so.
How much money does the business make?
Business valuation and pricing always boil down to cash flow. That’s why every buyer is going to want to know how much money the business makes, and they’re going to want to see proof of that before they buy it.
What’s the upside potential?
They may not say it directly to you, but buyers are thinking about doing better with your business than you are doing. That’s why they will often ask you what you would do to grow it and increase its profitability. Anticipate this and then share your thoughts with prospective buyers. After all, you know your business better than anyone.
What’s the chance that I could lose money?
Buying a business is full of risk. In many cases the buyer is going to give you a large amount of cash at closing and have many financial and legal commitments that last for years. Before they write a big check and make those commitments they are going to wonder about the downside and all the ways they could lose money in the deal. If you can anticipate the risk factors and address them with the buyer upfront, you’ll build mutual trust and have a better chance of closing the deal. Two common factors to discuss are the extent that the business can operate without you, and the percentage of recurring revenue.
What’s it worth?
Most small businesses go to market with an asking price. Mid-sized and larger businesses may be marketed without asking prices. Regardless, the buyer wants to know what the business is worth. They will be interested in how you value it, but expect them to perform their own formal or informal valuation before they make you an offer.