Guide to meeting prospective buyers for the first time

By Josh Foo, Senior Partner

Updated 12:01pm AEST, November 20, 2019

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(Onwardbull.com.au)Meeting a prospective buyer for the first time could be as unsettling as going on a date, especially if you fear having to answer 'invasive' questions or having a complete stranger prodding into your business. 

 

However, this is the moment where you have to make it count.   You or your agent has worked very hard to get a business buyer in front of you, and now is not the time to undo the hard work. 

It is important that you know how to engage the buyer properly to get off on the right foot, and to maximize the probability of a sale.

  

You should be aware of the "dos and don'ts" of meeting a business buyer.     

Rapport Matters

 

Seriously, rapport matters.  Rapport with the buyer builds trust.  And trust is what sells your business.   You'd be surprised at how many buyers will proceed with the sale because they trust the seller or the owner of the business. 

 

Buying a business involves a considerable amount of risks that cannot be fully explained away by due-diligence or by the paper trail alone.  Trust is a salient but powerful human element that buyers use as a tool to assess risk. 

If you come across as genuine, sincere, and likable, then you will have a much better chance of selling your business.   How you build trust and rapport with people is beyond the scope of this article but it is important that you try to be approachable and genuine in your undertaking with prospective buyers.   You have to know your business like the back of your hand.  Avoid being evasive with your answers or you'd be seen as having something to hide.

Prepare a list of questions that buyers may ask and have good answers ready.  

Rapport with the buyer builds trust.  And trust is required to sell any business.  PHOTO: Pixabay.com

The First Meeting

 

Treat the meeting with the respect due to prospective buyers.  

For starters, please choose a meeting time that allows you to attend to the buyer properly.   For example, you may wish to schedule employees in your business so that you have the free time to properly sit down and engage the prospective buyers. 

You will not build rapport with the buyers if you make the buyers wait or if you can only talk to the buyers intermittently while you rush off to do "work" in the business.  If you can't afford to hire staff to take 2 hours off, then in the minds of the buyers, your business mustn't be doing very well.

Qualifying The Buyer  

The first meeting allows both parties to quality the opportunity.  This means that you, as the seller should also assess the buyer by asking the tough questions

If you are using an agent, the agent will filter out obvious the tyre-kickers and time-wasters before they get to you. Even so, some prospective buyers are still unsuitable.

 

You should know the minimum requirements for a buyer, and at the meeting, do not hesitate to probe to ascertain if the buyer meets these requirements.  

Some of the more common requirements for buyers are:

 

Experience:  Does the buyer have sufficient experience to secure landlord approval, if there is a lease attached to the business?  

Non-Current Assets:  Does the buyer have sufficient equity in non-current assets & real estate assets?  Most landlords have an asset requirement on prospective tenants.

 

Money:  How is the buyer going to pay for the purchase of the business?  Can the buyer furnish evidence of the funds?  If a loan is involved, has the loan been procured by the prospective buyers? 

Franchisor Requirements:  If the business is a franchise, ensure that prospective buyers meet the requirements of the franchisor.  For example, some franchise businesses will require that the franchisees are Australian citizens or Permanent Residents.  

Licencing Requirements:  Some businesses require a licence from local, State or Federal bodies.  For example, a pharmacy may require a licence from the State regulatory body.  A newsagency may require a membership to the State's lotteries commission.  These requirements could entail passing English proficiency tests, police-checks and bankruptcy-status checks. 

Visa Status:  There are a lot of rules and regulations for foreigners to buy a business in Australia.  A particular buyer was deported out of Australia after he signed the contract for the sale of business.  He had overstayed his tourist visa for years.  Hence, it is wise to confirm the visa status of any prospective buyer.

In short, you can save yourself much hassle, time and money if you size up prospective buyers early on.   

Guard Against Avoidable Mistakes

There are so many things that can go wrong at the first meeting, but probably saying the wrong thing leads the field.  

Too many business owners say the wrong thing that are counter-productive to selling their business. 

This may come as a surprise but many business owners do not know the financial numbers in their own business.    They have vague idea around the weekly net profit, the GST paid to the ATO, PAYG withheld per quarter, Superannuation paid to employees, the Cost of Goods... and the list goes on. 

 

So they say the wrong thing at the meeting, sounding unsure.  Or they sound like they have something to hide.  

Unfortunately, if you are illiterate on the financial numbers in your own business, you will come across as evasive or untrustworthy, and the buyers will lose interest. 

Another mistake is to exaggerate the profits and figures.  If you embellish the truth, you will lose credibility when prospective buyers scrutinize your business closer in the due diligence process.  They may wonder, "What else did you lie about?"   Further more, you may have given cause for the buyers to offer a lower price because of the discrepancies. 

Another mistake is to give away too much trade secrets and confidential information at the first meeting, without qualifying the buyer first.    Remember that the purpose of the first meeting to size each other up.  If the buyer does not meet your criteria, for example, they do not have the appropriate visa to stay in Australia permanently, then there is nothing more you need to do.   

If you furnish too much confidential information about your business without qualifying the buyers, you also expose your business to significant risks.  

Assess The Risks

 If you want to sell your business, you will face risks.  This is inevitable.  Some of the more common risks are:

  • Breach of confidentiality:  Employees are aware of the sale and they leave or damage the business

  • Breach of confidentiality:  Clients are aware of the sale and they leave

  • Breach of confidentiality:  Trade-secrets are stolen in the process

  • Breach of confidentiality:  Competitors are aware of the sale and they poach your clients and employees by shaking their confidence

  • Where approval of the landlord is necessary for the sale, losing rapport with the landlord could be disastrous.   The landlord could become uncooperative if they have to deal with tire-kickers or subpar prospects

  • Wasting months with the wrong buyers and closing the door to the right buyers

 

As every business have different risk tolerances, it is important to understand the risks within your own business and enact processes to protect your business. 

 

For example, if a handful of clients form the bulk of the revenue for your business, you should take firm actions to protect this information.  You may request ID checks on the buyers, request substantial deposit held in trust prior to the release of such information (generally refundable if the prospective buyers do not proceed) and request the parties sign a Memorandum of Understanding.  

A competent agent will be able to guide you and activate these protection mechanisms in place.  

These protection mechanisms are not 100% foolproof so it is still extremely important that you qualify the buyers first and don't be afraid to ask tough questions of the buyers.

Lead The Process

You will need to lead the buyer on procedures around selling the business.

 

If you are using an agent, it is important to compare notes with the agent so that you don't say anything contrary to the tried-and-tested process.        

 

At our agency,  we will always insist on a 10% deposit or a minimum of $20,000 to be held in trust.  If the interested buyer is unable to furnish this amount, then this is a very clear warning sign that the buyer may not have the funds to proceed further.   We use this as an excellent stress-test on the buyer.  Any amount less than this does not do the job properly.   

Also, some sellers will gladly offer a "trial" or to embed buyers into the business prior to a deposit or an exchange of the sale contract.  Needless to say, this is highly risky for the seller and most agent will recommend against this.  Also, this gives prospective buyers the opportunity to find petty flaws in your business to negotiate the price down later on. 

If you have engaged a competent agent, then have a conversation with the agent around tried-and-tested processes, prior to meeting the buyer so that you can avoid saying the wrong things. 

 

If the agent is present at the meeting, then allow the agent to lead the process.*  

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