What to ask prospective buyers at the first meeting
By Josh Foo, Senior Partner
Updated 11:22am AEST, Dec 04, 2019
(Onwardbull.com.au) - At business meetings between the two parties, a lot has been said about what buyers should ask of the business owner to support the buyers' decisions to buy the business.
Business owners are sometimes left to feel as if they are the interviewee for a job and forced to qualify themselves to prospective buyers.
I would like to turn the tables and shift some mindsets.
Business owners are entitled to ask questions of the buyers, and they should.
The age-old axiom that 'the customer is always right' does not apply in this situation. The prospective buyer is not a customer, thus you should not feel guilty or awkward to qualify the buyer to avoid heartaches later on and wasting your precious time (or the buyer's time).
Questions You Should Ask
Some of the questions you should ask are:
1. When would you be looking to buy the business?
This question helps you to align your hand-over timeline with the buyers. If the buyer is only willing or able to buy your business in, say 12 months' time, then this could be an issue for you if you want an urgent sale.
This question also helps you to filter out those buyers that are still shopping around, and those who are ready to buy now. Buyers that are shopping around will be ambiguous with their answers and you should be able to pick up these vibes at the meetings.
2. Do you have any experience in this type of business?
This should be one of your most important questions to the buyer. If your business is "brick-and-mortar" with a rented premise, then the landlord will very often require an experienced operator in the business so that the business will continue successfully as an on-going concern (and by extension, the tenant's ability to pay the rent). Even if the business is a franchise and the franchisor holds the head-lease, the franchisor is still likely to have requirements and experience.
Also, an inexperienced buyer will require more training and you will need to factor this into the asking price to cover your time and the costs of training the buyer.
3. Will you be borrowing money from the bank to finance the purchase? And do you have pre-approval?
These questions are actually quite important. Prior to shopping for businesses, many buyers actually do not have firm access to their funds. They often figure with their fuzzy logic that the banks will simply hand over the money when they ask for it, often on the wrongful assumption that they have equity in their homes.
Sometimes, buyers will not tell you that they need you (the business owner) to furnish them with an array of business documents to help them secure their loan. This could prove problematic for you if your financials are incomplete or the earnings from the business are insufficient to get the loan approved. Also, you might not want the hassle of doing this for the buyer so you should really ask these questions early on.
This way, you can filter the buyers properly.
4. How do you intend to finance the purchase of the business, if not a loan from the bank?
If the buyers say that they do not need funding or a loan to buy your business, then the next question you should really ask is, how do they intend to finance the purchase. This will help you to assess if the buyer is serious or a tire-kicker.
Many business owners assume that buyers have the money. This is not always the case.
By probing into their ability to buy the business, you are also pre-empting the kind of questions the landlord may ask. For "brick-and-mortar" businesses where a lease and a landlord is involved, the sale of the business cannot proceed without the approval of the landlord. You need to ask the hard questions first because the landlord will too. This way, you can filter the buyers before they talk to the landlord.
As landlord approval is crucial to the sale, you would be well served to keep the landlord happy and not waste the landlords' time.
5. Will you be the sole owner of the business?
This question is a sly way to find out if the buyer at the meeting is the key decision-maker.
If the buyers are in a partnership, or if another entity is involved, then this may come to light with the question being asked.
You may even ask the question straight-up if the buyer is the decision-maker. This gives you an insight into the buyer/s and whether you should invest further time and effort to take the discussion further. For example, you may wish to reschedule the meeting until all the decision-makers are available to attend the meeting.
If there is more than one decision-maker, you may need to adjust and angle your pitch to maximize your persuasion to a group of buyers, rather than to one buyer.
6. Are you a Permanent Resident or Australian Citizen?
Some franchisors and landlords require prospective buyers to be either a Permanent Resident or an Australian Citizen. It would be wise to find this out early on. Non-residents may face problems such as visa restrictions and funds transfer issues. These issues can expend a lot of time and effort to resolve. Many buyers will withhold such information for fear of being filtered.
7. Why do you want to buy this business?
This question helps to qualify the motivations of prospective buyers. Some buyers are not genuine - they could be competitors, suppliers, government tax auditors, or tire-kickers. This way, you can get a feel for where they are coming from.
Some buyers are serious about your business, but they may have ideas incongruent with how you feel the business should be managed. For example, the buyer intends to fire your loyal employees. This may be an issue for you if care about your employees.
The key takeaway is that asking the correct questions of the buyers early on at a meeting will save you much wasted time, money, and unnecessary pains later down the road.
For example, you would not want to pay unnecessary legal fees to proceed with the sale of your business when you ought to know that the buyer is unlikely to obtain funding from their bank, or approval from the landlord.
Also, an unqualified buyer may waste months of your precious time by causing you to forge ahead with a 'false positive'. This is particularly damaging if your business has a lease attached and the lease is ever getting closer to its expiration date.
By not asking these questions, you may place your energies onto the wrong buyers and overlook the right buyers. It is in your interest indeed to ask these questions.*