"Qualifying buyers in our humble view sets the stage for any successful sale. It is the absolute first step that must not be compromised. Before any business information is shared with a buyer, one should first determine is the buyer suitable and capable."
Our key principles in addressing this first stage of a business sale process are:
1. Confirm that a prospective buyer is in a financial position to acquire the business
This is also to protect the buyer. One does not want to see the buyer undercapitalised and struggling from the outset. Many of our clients use the word “legacy” in their business sale wish list. They want the buyer to be successful.
Find out how the buyer intends on funding the business? Are personal assets required as security? Does the buyer have enough working capital in context with the business?
2. The next litmus test is regarding the commercial ability
Every case is different, and it can be difficult to tell in the first instance. It is a powerful exercise to ask the buyer some questions.
What sort of strengths does the buyer have? Is the business lacking in those areas? Is the buyer realistic about the nature of work, and the work is enjoyable? What prior commercial experience does the buyer have?
An example of this gone wrong was at the end of the last GFC. Too many white-collar workers bought cafes. Whilst they may have been commercially strong, their expectations around the working demands and lifestyle of a café owner were highly unrealistic. Many of them were run into the ground very quickly and sold at significant losses.
3. Do some basic background checks such as LinkedIn, and Facebook
Make sure the buyer is who they say they are, and that they have a genuine interest in purchasing the business. A confidentiality deed can also cover this undertaking that a prospective buyer is genuine.
4. Finally, establish with them the best means of communicating
Communicating professionally, with courtesy, respect, and in a timely way are great foundations to set up with the other side from the beginning.
The next step in the business sales process is document disclosure. It can often be a significant contention between sellers and buyers. It is our topic we will write about next week, it is indeed a true dilemma.
Seller’s will naturally want to protect their operational information, and buyers need the information to make an informed decision. Managing this effectively can be the difference between a successful sale, or a very frustrating experience.
Have you been there before? We certainly have!
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(t) (02) 8923 2632