Top 10 Questions To Ask Buyers When Selling a Business

I have drafted up a comprehensive list of the Top 10 questions any seller should consider asking any prospective buyer of a business they are selling.Yes you have read that right! Why would a seller need to ask questions? For many reasons. First and foremost, selling a business is a very long and bumpy process. You will get a flurry of interest in your business when it goes out to the marketplace for sale and not all enquiries will be worthy of your precious time.

There are sadly a lot of time wasters and window shoppers out there. It’s hard work enough trying to run a business. Add to that the time and energy required to sell the business, plus handle negotiations and you have your hands full. By asking the right questions early on, you will save yourself a lot of wasted time in phone calls, meetings and emails and get straight down to business with those who are serious about making a purchase. Here are my 10 key questions any seller should consider asking when talking to a buyer:

1) Why do they want to buy your business?
It’s the most straightforward question you can ask and will most likely follow the question that they put to you of why you have decided to sell the business. In an exact role reversal, this question will give you a good idea of what they are thinking in terms of the interest. If they give you a clear and decisive answer, chances are they are serious about getting into your field of business. Any delays, pauses or resistance to this question may give rise for concerns. It may translate that they have simply stumbled across your advertisement and wanted to see what you had to sell which in most cases, is going to be a waste of your time. Window shoppers are unfortunately part and parcel of the selling process and weeding them out can be time consuming and frustrating.

2) What are their present circumstances?
You’ll be amazed at the variety of professions and circumstances prospective buyers are in when considering the purchase of a business. Many buyers are in a career or a company that they simply have grown tired of or simply want to move away from, that have little if no relation to what your business does. This is the exact point where you should analyse whether this person is looking for a means of escaping their present situation or is really serious about getting into your line of work.

Of course, it’s very easy to judge people unfairly in these circumstances so keep an open mind, however if the person clearly seems to be from a field that bears no relation to yours and your company requires a defined skill, experience or qualification, you could be faced with an inappropriate sales lead.

3) Which other businesses for sale have they approached?
Following on from the previous question, this will no doubt clarify exactly where your prospective buyer presently stands from their own perspective. If they have approached a variety of businesses from all kinds of fields and niche markets, which they fully intend to run themselves, you may have a difficult situation to contend with. If however, they are solely concentrating on businesses specifically within your market, it would be worth asking why they have a particular interest in this field and you may gain a clear idea of why they want to get into your specialist area.

Reserve judgement before you write any prospective buyer off. The more questions you ask, the better understanding you’ll have.

4) How much notice does the buyer have to give present employers?
Many people who are already in employment fail to recognise their own commitments and a lengthy notice period of 2 or more months could cause issues with any purchase and handover process.

5) Do they have any experience in your field of business?
If they lack experience in your field of business, ask if they intend to bring in employees or contractors who will help to take over roles and responsibilities that they are neither qualified or experienced enough to deal with. Many prospective buyers foolishly think they can ‘learn the ropes’ as they go which is a dangerous and foolish approach to any business.

6) How do they intend to fund the purchase?
This question tends to be the stumbling block that catches out many prospective buyers right from the start. Getting a sizeable loan from a bank, especially since the global recession is no mean feat. Most banks will ponder and scrutinise over the smallest of details and yet, many buyers simply forget to look into funding before speaking to business owners, assuming that getting a loan will be nothing more than filling out a few forms. If you ask the question and it is met with a delay or their eyes start to wander around the room, you can bet your bottom dollar that they a) haven’t even given this any consideration until now or b) simply don’t have the money in the first place.

If you are an experienced business person, you’ll know right away at this point whether these buyers are wasting your time or have genuine, professional intensions.

7) Is the finance for the purchase already in place?
Continuing from the previous question, it is well within your rights to ask if they have the money in place whether through their own capital injection or from a third party such as a bank or business investor. Either way, you need to know that their money is good and they have the necessary capital to not only buy your business but run it effectively too.

8) Has the buyer drafted up financial forecasts?
Whether or not the buyers have seen your financial statements, any buyer should still be able to draft up rough forecasts to determine the levels of income necessary to pay for wages, running costs and day-to-day expenditure. You shouldn’t necessarily have to expect every buyer to have performed any serious forecasting however, a buyer that displays this kind of dedication is clearly illustrating a level of seriousness regarding buying a business and you can only gain comfort from this.

9) Has the buyer considered the demands of running the business?
No matter how many questions you answer, any buyer won’t know the true levels of work required to do your job. Naturally you don’t want to put the buyers off but in the same token, they need to be given a realistic picture of what the job entails.

10) Do they have professional representation in place and have they been informed?
Anyone who is really serious should be talking to a lawyer and at least an accountant. If not, you would have to question why? They intend to spend a sizeable amount of capital on your business and start a new venture yet they have no representation or professional accountant advising them. To me that would seem rather odd.

Naturally, you should always ask any of the questions above gently, politely and with tact. We don’t want to offend! A few of the points listed here are quite intrusive to some folk however, in business these are questions that one should expect to ask or be asked. If you can ask the above points in a carefully considered way, it should help you gauge a clear picture of exactly who your buyers are.

Simon Burge, Article Team, Simply.Biz
Website: www.simplybusinessesforsale.com
Follow us at: twitter.com/simply_biz

Top 10 Questions To Ask When Buying a Business

As a buyer, asking the right questions is crucial to ascertaining whether a business is worthy of your consideration for purchase. There are literally dozens of questions that you could ask however, I have listed the essential questions and areas that you must investigate before making any decision to proceed further. Here are my 10 key questions any buyer should ask when considering the purchase of a business for sale:

1) Why are they selling?
It’s the most simple yet obvious question to ask and infact will be the most insightful question you could possibly ask and will tell you a lot about the sellers integrity. The answer will either raise concerns or be met with no resistance. If the former occurs, consider your position very carefully. If a credible answer is given, you can no doubt move on with your questioning.

2) Can you have sight of the accounts?
Ask for permission to review the financial statements of turnover, cash flow, profit and loss, balance sheets and tax returns for the last three years. If you intend to borrow from a bank to purchase the business, any bank will want to see this information.

3) Are there any debts?
Does the business have debts owed to creditors, property or equipment leases? Information such as this can sometimes only be uncovered when it’s too late so ensure that the business is not funded on debt or has huge debts to pay or has long term lease agreements in place that could hamper the business cash flow.

4) Are there any fixed assets and what is their present condition and value?
If the business has numerous types of equipment or even equity or property, what are there present values? Does the equipment need replacing or repairing? Does the companies have any shares or equity that is accumulating in value? If the assets are simply depreciating, are they worth considering or are they simply worthless? Assets can sometimes appear to be worthwhile when in fact may be viewed as a liability to a buyer when it is clear they will need to be replaced or repaired which in simple terms means more investment and cost.

5) Who are the companies book keepers, accountants and lawyers?
A very straightforward question yet it pays to know who handles these very important aspects of the business. No doubt, if you are looking to start due diligence procedures into the business, your accountants and lawyers will need to speak to theirs and expect little if no resistance so that all necessary information can be ascertained. If you find that the business is lacking in any professional representation in these crucial areas, ask yourself if this business is really worth considering after all?

6) Can you speak to the employees?
Some sellers will happily let you speak to their team of employees if the sale is not of a confidential nature. If this is the case, it can help you gauge how the business operates and the mood of the team. There may have been a significant turnover of employes for example, which may point towards unhappiness in the ranks. Speaking to employees may not always be possible where confidentiality is key so this point can’t be regarded as a deal breaker, but advantageous if given the opportunity.

7) Does the business have any recurring contracts?
As the saying goes, turnover is vanity whilst profit is sanity. If a business solely relies of cold sales, market fluctuations can affect the overall turnover year on year. If however, the business for sale has recurring contracts in place with customers that run over longer periods of time, you can easily calculate a projected level of sales that are guaranteed annually which will add value to the purchase of the business. Fixed contracts are a sign that the business has good ties with its clients.

8) How does the business handle client relations?
Many businesses neglect to maintain good client relations. Ask the sellers how they maintain communication and good after sales care with their clients. A questions such as this can be very revealing as many businesses can be guilty of resting on their laurels. A lack of after sales care is a true sign of taking your customers for granted.

9) Does the business presently have any disputes or litigation proceedings in progress?
Ensure you ask this question as any business you take over will also take on any disputes that are pending, in progress or close to conclusion. Don’t get caught out by handing over capital for a business that is about to be bled dry. It’s a terrible situation to end up in and in a lot of cases, there is little you can do about it unless the seller has deliberately misled you.

10) Will there be a handover process by the present owner?
If the business is sold, there should be a reasonable level of training or handover by the sellers to introduce you to the workings and day-to-day practices of the business. In most cases, the seller will happily negotiate a fee for their services or include this in the asking price when selling the business. Either way, this is an important part of the transfer and it would be unwise to go ahead with this agreement in place.

Naturally, there could be countless other questions you would ask the seller of a business for sale. However, each business is different and there is never an entire list that fits every criteria. These questions should put you in good stead and give you comfort in the knowledge that you have covered the basics at the very least. It pays to draft up a list of questions you want to ask as well as this little list, so why not add your own questions to ensure you are armed with a comprehensive set of questions to put to the business seller.

Simon Burge, Article Team, Simply.Biz
Website: www.simplybusinessesforsale.com
Follow us at: twitter.com/simply_biz

Top 10 Important Factors to Consider When Buying a Business For Sale

When seeking out a new business acquisition, there is literally a minefield of choices on offer. Each and every business sector will have varying business of all sizes, shapes and types. On the surface of things, a large number of the businesses you initially find in your internet searches, magazine reviews and discussions with brokers may appear to be ideally suited to your needs. However, armed with a few important pieces of information and areas to scrutinise may reveal hidden secrets or problems with businesses for sale that will help you to avoid enquiring about inappropriate businesses and ultimately making a huge financial mistake!

By following some of these hard and fast rules, you should get a better idea if the businesses you are considering are bargains waiting to be snapped up or literally acquisitions that could leave you up to your neck in trouble:

1) Turnover, Profit and Loss
First and foremost, any business you buy is about making money and in an ideal world, a return on your investment. It never ceases to amaze me the number of businesses that submit inflated or wholly inaccurate sales, profit or loss figures on business for sale adverts. First off, look at the margins compared to the sales figures – do they add up? You don’t have to be a qualified accountant to realise that is sales (turnover) figures are reasonably good, yet net profit is very close to the same level then something isn’t right. The same can be said if the net profit levels are very low. It translates that the business costs a lot of money to run and cash-flow is very thin on the ground. Even if the gross profit is high, this doesn’t really tell you anything. Essentially you need to know if after all deductions the business is making money.

2) Over Inflated Valuations
So may owners of businesses believe their company to be worth way more than it actually is. In many cases this is down to an emotional attachment which is perfectly understandable but a huge hinderance. In most circumstances, business owners don’t take the news too well when they are told the actual real value by a professional valuer. There’s no solid rule but anyone who is asking for more than double the net profit value of their business is probably a little ambitious. So for example, if the next profit of a business is 40k, asking for anything above 80k would be pushing your luck. Most investors or buyers of businesses would ideally want to make back their money within two years so any figures that would exceed this time period shouldn’t be desirable to any purchaser.

3) Years Trading
I’ve lost count how many fledgling businesses have been put on the market for ridiculous prices. Without even a full years trading, the owners have calculated their asking price literally on a few months turnover without taking into account market fluctuations, varying expenditure, not to mention a lack of goodwill value or trading history. This sadly happens all the time. Don’t be fooled by misleading sales, profit and loss figures. Without any tangible length of trading time to call upon, no business owner can realistically calculate a reliable sales price without the help of an accountant or professional business valuer. If you are considering a business of this kind, ask how the figures they are presenting have been met. In most cases, I would advise you tread very carefully when considering buying a business with very little trading history. The chances are it isn’t working for the present owners and the likelihood is, it won’t work out for you either.

4) Due Diligence
If you are serious about a business you have selected for purchase, you must carry out detailed due diligence procedures into the full workings of the business, as well as the financials. Only at this stage will you gain a clearer insight into the day-to-day running of the business and the financial history. You’ll see exactly where money is made, spent and wasted. Remember, once you own the business you take over all liabilities as well as the benefits of the business so do your homework and don’t get caught out!

5) Assets
All businesses that have any tangible commodity should have some form of assets in place that add value. This could be in the form of property, equipment, intellectual property, contracts or even the staff. Whichever way you look at it, the business and it’s strengths are solely the product of it’s productivity and assets are usually a part of this. What is important to you is whether these assets are able to maintain their value or whether they will depreciate. Bricks and mortar for example, tend to appreciate in most circumstances. Equipment however, can depreciate quickly and require regular maintenance or repair. So it’s important to gauge a real understanding of what the businesses assets are and whether they hold any true value or not.

6) Liabilities
Just as assets can increase a businesses value, on the flip side liabilities can drag it down. It is vitally important to check that the business you are considering doesn’t have any notable liabilities in place. These can include debts or bank loans, vehicles or faulty machinery and even unproductive staff. If the liabilities are bound to increase the financial burden on the business in a notable way, consider your position carefully, This could be the sole reason that the business is being sold in the first place.

7) Disputes
Legal disputes or otherwise can be a massive headache for businesses. With ever increasing employment and business legislation in place in the modern world, it is not uncommon to find a business for sale that has one or more ongoing disputes which could hamper the future of the organisation. It would be extremely wise to ask the present owners of the business to declare any disputes whether past or present to determine if they are a stumbling block of any kind. If you take over the business, you have to take ever their disputes.

8) Competition
It goes without saying that any business wants as little competition as possible but it is very unrealistic or unlikely to expect this to be the case in present times. What you need to establish is whether the competitors will affect the business to the point where it could cause irreparable damage or if they are simply too insignificant to be concerned about. Sometimes competition is healthy and it keeps you as a business owner focuses and on your game. What you essentially need to recognise is whether any competitor will take too much of your market share to affect your turnover or whether the business you want to buy is strong enough to fend them off.

9) Employees
In the majority of cases, a business is judged by its workforce. If you have the opportunity to examine the workplace, speak to employees or at least observe the day-to-day workings of the business then do so. You want to know whether this business has a skilled and productive workforce. Anything less may be a concern.

It would also be very prudent to have sight of employment contracts or be made aware of any contracts that involve high salaries, bonuses or clauses that could be of a concern to you and the business.

10) Longevity
The bottom line is that any purchase you make is for the long game and your investment needs to be returned over a set period of time. In all cases, you need assurances that the business you seek to buy has the stability and productivity to maintain longevity to carry out and fulfil your long term strategy. Whether you intend to own and run the business only for a few years or for many decades, you have to weigh up all factors to ensure that your long term investment is a wise one.

Naturally there are many other factors to assess when looking to buy a businesses for sale, but these key points should get you on the right path in the offset. Each business is different and the circumstances surrounding the sale are always different. As the buyer, it is up to you to uncover the reasons as to why the business is on the market. We aren’t all naturally gifted at carrying out detective work but with some common sense approaches and prudence, you should be able to reveal all the facets of the business for sale before making any final judgement as to whether to buy or walk away.

Simon Burge, Article Team, Simply.Biz
Website: www.simplybusinessesforsale.com
Follow us at: twitter.com/simply_biz