Selling a business involves sharing sensitive information with would-be buyers. However, before you disclose this kind of business intelligence you need to know and understand the reasons why a certain investor is interested in acquiring your company. How do you go about confirming whether a potential buyer has honest intentions or not? Let’s discuss this.
1. The buyer has their financing in place
How a buyer intends to finance the deal is important. One great way to check a buyer’s seriousness is by asking them how they plan to buy the business. Have they’ve secured a line of credit prior to making a business acquisition offer? While it is not a pre-requisite, a buyer’s ability to show you a lender’s pre-approval letter is a sign of good faith. This also demonstrates that they can qualify for more loans to complete payment if you agree on a series of monthly installments.
2. The buyer asks pertinent questions
Serious buyers are curious and inquisitive about all sorts of things relating to the business. The nature of their questions, their ability to listen and give feedback are signs that they are genuinely interested in understanding the business.
A buyer who acknowledges that the business is more than its financials will pose questions relating to the company culture and succession planning. Whereas, buyers with no real interest might only focus on the financial side ignoring the other elements that make the business fully functional. These people may not be the type of characters you want to buy your business.
3. The buyer has positive previous business dealings
How much do you know about your potential buyers? What about their history as an investor? Do they have pending lawsuits or breach of contract cases lodged against them? Do they have a history of walking away from deals? Is this a behavior pattern that you should be concerned about?
While there are no guarantees, a buyer who has had a history of successful closures lends merit as one to be trusted. Whereas, a buyer with a reputation for walking away from negotiations and has a string of failed mergers and acquisitions is one to be cautious around.
It’s only fair to know what level of commitment your buyer is prepared to make before you both commit to signing the Letter of Intent.
4. The buyer isn’t flying solo without business brokers
Chances are you wouldn’t buy a house without going through a real estate agent. For many people, a home is the biggest investment of their lives. If they’re so convinced that they should hire a professional to help them, shouldn’t this be the same attitude carried by serious buyers? Any credible buyer wouldn’t make such a commitment without consulting with an M&A firm.
One sure-fire way of weeding out time-wasters is to ask them who their business brokers are. A buyer without a broker is likely just browsing and not really ready to buy a business. Be wary of such individuals or entities.
5. The buyer speaks possessively about your business
It is relatively easy to distinguish between serious buyers and those who are merely passing through by listening to their rhetoric. Serious buyers unconsciously use possessive language when talking about your business.
You may hear them ask questions such as, “What would we do with ABC when we’ve acquired this business? Can we alter 123 things?” They see themselves as the new owners already and their talk reflects this.
The perpetual business browsers who never commit to any business acquisition don’t voice such introspective questions. Instead, they may even talk about other similar businesses they have also approached in the past. These types of buyers with no real motivation or intentions? Stay far away from.
6. The buyer makes a legitimate offer to buy
Investors who are ready and interested in beginning a relationship with the seller are not hesitant in making a legitimate offer. Why the emphasis on legitimate? Because not every offer is worth entertaining. Your asking price should be guided by the figures received from a business valuation. However, it’s not uncommon that most sellers settle for slightly less.
Illegitimate offers are those that are significantly much, much lower than the lowest figure you’re prepared to sell for. An offer should be at least close to the seller’s asking price. Few buyers will make an offer of the full asking price – this is not saying it’s not possible to sell at full price because there are businesses that are truly worth every penny and more.
7. The buyer has a timeline and follows up
In the business world, time is money. Buyers with noble intentions realize this. They don’t want to drag out an acquisition over months. It’s costly for everyone involved. Therefore, they make moves and follow up with the seller. They sign the Letter of Intent and immediately proceed to carry out due diligence using every resource at their disposal to find out everything they need to know ahead of drafting a purchase agreement.
8. The buyer is well acquainted with your business’ industry
Buyers who know what’s going on in the industry and have an understanding of the current market conditions demonstrate that they are up to date. Perhaps their decisions to buy your business are being influenced by how the markets are performing and what the experts are projecting to happen. Matching with a buyer who believes in the business and what it can become in the future is comforting for any seller.
Surround yourself with the right team
Sifting through the different offers you receive and identifying credible buyers can be taxing if you have no previous experience with mergers & acquisitions. Having the right team of business brokers on your side can make all the difference between closing a deal and having it collapse last minute. Contact Sun Acquisitions for all business advisory services.
Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.