10 Questions Often Asked When Looking to Sell Your Business
One of the most intimidating aspects of selling your business can be facing the barrage of questions during the various management presentations you’ll be doing for potential acquirers. Be prepared to be grilled on all facets of your operations. Of course every meeting will be different, but here are some questions you can expect to be asked when you’re in the hot seat:
1)
Why do you want to sell your business?
It’s a challenging question because if your business truly does have a bright future—and you want the buyer to believe that’s the case—the obvious question is: “Why do you want to sell it, and why would you want to sell it now?”
This is where you should have a clear idea as to the pull and push factors that are leading you to exit or transition your business in some way. Looking to exit may have little to do with the performance of the business and much to do with a major aspect of your personal life. You want to be able to articulate why you are looking to sell and also ease any doubts in the mind of the buyer.
2)
What is your cost per new customer acquired?
The potential acquirer wants to find out if you have a predictable, economical and scalable formula for finding new customers.
3)
What is your market penetration rate?
The acquirer, with an eye to future growth, is trying to understand how big the potential market is for your product or service and what part of the field remains to be harvested.
4)
Who are the critical members of your team?
The acquirer wants to understand the breadth and depth of your team and determine specifically which members need to be motivated and retained post-purchase. They will also want to assess any risk of the fortunes of the company being held hostage by one or a handful of key employees.
5)
Who buys what you sell?
Strategic buyers will be searching for any possible synergies between what you sell and what they sell. The more you know about your customer demographics, the better the buyer will be able to assess the strategic fit. If your customers are other businesses, a buyer will want to know what functional role (e.g., training manager, VP of sales and marketing) buys your product or service.
6)
How do you make what you sell?
This question sizes up the uniqueness of your formula for creating your product or service. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. For various reasons, they will also want to understand if the creation of your product or service is dependent on any one person.
7)
What makes your product or service truly unique?
A buyer is trying to understand how well you have differentiated your key products and services; and how difficult it would be for direct competitors to go head-to-head and capture your market share. The more differentiated your products and services, the more secure you are against competition; and the more freedom you have in setting your prices and margins.
8)
Can you describe your back-office setup?
Most buyers will try to understand how easily they can integrate your back office into their operation. They will want to know what bookkeeping and billing software you use, how customers pay, and how you pay suppliers. They will look at how long it takes, and how effective your processes are, in collecting what is due from customers.
9)
How have you arrived at your Selling Price?
A buyer is trying to gauge if you have a clue as to the true value of your business. Do you have quantifiable and valid reasons as to how you priced your business?
Many sellers assume that the investments they made in the business and “past glories” should be incorporated in the price. These appeals will fall on deaf ears. The buyer is only interested in knowing what future positive cash flows your business will provide him (after all operating and capital expenses are paid) and how confident he is in these future positive cash flows occurring.
10)
How many hours a week do you work in the business? Do you take holidays?
Here the buyer is looking to see how independent the business is without you. If you answer with many hours and no holidays, it will tell the buyer the business cannot run without you.
If that is the case, the buyer may walk away or only be willing to purchase at a significant discount. In addition, you may be tied into a significant earn out period where you will work as an employee at the company you just sold; and bear the risk of missing performance targets that can knock off significant portions of the purchase price.
Of course this is not an exhaustive list, but it’s a good start when you start to think about how to represent your company to potential buyers.