October 4, 2016
Things to consider when qualifying a business buyer
By Achim Neumann
Of all the steps in the life cycle of a business, the exit is the one that generates the most excitement. All those long hours invested into growing an idea into a revenue-generating machine get rewarded by the hopeful large buyout, as well as the free time needed to enjoy it.
However, it is important for business sellers to carefully vet buyers, as there are many unqualified individuals for every suitable candidate.
Here is what an entrepreneur should consider when qualifying potential buyers for their business:
1) Do they have a time frame?
They should have a defined window in which they are prepared to do a deal. With no deadline, the resultant lack of focus wastes valuable time of the business seller.
While it would be ideal if all buyers were motivated to act within a short period, the seller should be prepared to impose their own limit on the amount of time that potential suitors can use before their chance to purchase the business vanishes.
If they miss the deadline, they’re out. Plain and simple. Asking prospective buyers if they will be able to respond with an offer to purchase the business within a given time frame is a polite way to do this.
2) What field/business were they in before?
There’s nothing worse than mis-communicating the skill sets required to successfully operate a business. Without making sure that a prospect has the background to handle basic tasks, the seller risks having the sale fall apart at the last minute. This wastes weeks of time on both sides.
Even if the sale got through somehow, the seller risks having their legacy tarnished if the new owner ends up running the business into the ground.
If there are only a few pieces missing with regards to the buyer’s business skills, training can be included in the deal to ensure a smooth transition between management teams.
3) How much money do they have?
While asking this question may be a social faux pas in many quarters, it is a highly relevant query when a seller is looking to complete a successful sale with a buyer.
There are many ambitious individuals that may seek to cut a financing deal with a seller to make up for their lack of capital up front.
However, it may not be wise for them to take on a sizable amount of risk when their goal is to offload the responsibilities of their company to a third party so they can cash out without worry.
The buyer should be able to prove to the seller that they have access to other sources of capital, such as from banks or other lenders, or that they have enough liquidity in their accounts to purchase the business outright.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or firstname.lastname@example.org