You’re off to a great start when your business-for-sale listing starts receiving inquiries from interested buyers. Yet, finding the right buyer and closing the deal may not always be a fast and easy journey.
Communicating with potential buyers online can be frustrating and challenging. Not only is it important to eliminate unqualified buyers, it’s also important to pique the interest of serious buyers and persuade them to meet with you in person.
The following guidelines will help you communicate with buyers more effectively and negotiate a successful deal.
1. Be Knowledgeable About the Business. This may surprise you, but many sellers list a business for sale without having their facts in order; they don’t know how much the business is worth and what facts to communicate to potential buyers.
Be prepared to answer questions about business’s cash flow and revenue numbers. Be prepared to share how the business valuation was determined, including past revenue, gross income, key assets and geographic location. One of the easiest ways to obtain a sense of what the business may be worth is to access a comparables report online, such as BizBuySell’s Valuation Report.
Once you have this information at hand, you will be prepared to back up the asking price. It’s important to be confident with your facts before marketing the business and discussing it with prospective buyers.
2. Identify Serious Leads. It’s unfortunate, but some of the leads you receive will not be from serious prospects, and it’s important for you to determine which of these are viable before you start devoting your time and effort into following up on them. As leads start coming in, you’ll start getting a sense of which are viable serious leads and which are not.
Oftentimes, a serious prospect will ask very detailed question and be knowledgeable on the business buying process. They may also share information on themselves, including what they are looking for and why they are interested in buying a business. The more prospects you communicate with, the more skilled you will be in identifying which of them are serious.
Once you make contact, ask them a few questions about themselves to determine how serious they are about purchasing a business. You might ask them how long they’ve planned on buying a business, or how they plan on obtaining financing, or how much they are willing to put towards a down payment. If the prospect responds with vague or unconvincing answers, this may be a red flag and a good reason to move on, rather than spend additional time and effort into keeping the conversation going.
3. Know What to Say, and What Not to Say. In many ways, buying an existing business is like buying a used car. If you’ve ever bought a used car, you probably asked why the previous owner decided to sell it. And then the car dealer probably told you that the previous owner was a little old lady who only drove it to church on Sundays. Business buyers will ask similar questions, wanting to know why the existing owner has decided to sell.
A typical seller response may be ‘I’m ready to retire’ or ‘I’m moving on to a new opportunity’ or ‘I’m selling for health reasons’. Yet oftentimes, the reason behind the owner’s decision to sell is less important than the timing in which the owner decided to place the business on the market.
Ideally, the answer to this question should be that the decision to sell the business did not arise quickly, but was a well thought out, well-planned decision by the owner, for the purpose of achieving personal and professional goals. In this case, the seller should be prepared to provide some sort of supporting documentation.
If the decision to sell the business was a quick one, this could be perceived as a red flag that the business may be in trouble, that the owner is trying to unload the business for some undisclosed reason, or hasn’t properly prepared the business’ due diligence materials.
More importantly, this is the opportunity for a seller to move the process forward by offering a realistic perspective about the business and its future growth prospects. Yet, sellers often prefer to paint a rosy picture of the business rather than simply be honest. Collaboration between buyer and seller, such as suggesting ways to increase capacity, market share and profitability, can further the process with a buyer who is not only qualified to make the purchase, but also keep the business operating successfully.
4. Keep Communication Flowing Throughout the Negotiation Process. Now that you have found a pool of viable prospects, it’s important to keep communication flowing through the negotiation process before finally reaching an agreement with a single buyer. Negotiation is the culmination of the entire sales process.
As you discuss the deal with each prospect, financing needs to be clearly discussed and identified. Oftentimes, a buyer may cobble together a variety of payment methods to complete the sale. Yet, sellers who are willing to finance a portion of the sale almost always receive a sale price that is closer to (or sometimes higher) than their asking price. Another way a seller can gain an advantage is by having the business pre-qualified for a loan by an SBA lender.
If multiple buyers are interested in the company, sellers should inform all prospects and encourage them to make counter offers based on the most favorable one received during the initial round. If more than one counter offer is received, the seller has the option to pick their preferred buyer.
Good communication should continue through due diligence, purchase agreement, and then finally closing the deal. It’s strong advised to have an attorney or other specialist present during these final stages of the sales process; sellers have a lot personally invested in the decision to sell and it’s important to bring objectivity to the negotiating table.
Following these guidelines will save you time and eliminate a lot of unnecessary headache that often arises when selling a business. Being prepared ahead of time and armed with the essential information will give you a leg up on negotiations and make it easier to finally closing the deal.