Questions Business Sellers Should Ask Potential Buyers
Buyers interested in acquiring a business usually have a long list of questions before they get to a non-binding offer, and more during the final due diligence phase.
But sometimes sellers neglect to ask questions that they should be asking a potential buyer before they engage in discussions.
Asking the right questions can help sellers qualify prospective buyers, set the right expectations for both sides, streamline the sale process… and ultimately create a win-win scenario for all parties involved.
Here are four critical questions that a seller should ask the prospective buyer in the early stages of the process.
1. WHY ARE YOU INTERESTED IN ACQUIRING OUR BUSINESS?
Sellers sometimes assume that a buyer is primarily interested in the seller’s book of business or specific assets.
While that may be true, buyers often also have more strategic reasons to be interested, including
- access to the seller’s operating model or a unique way of meeting market demand
- seller’s management or leadership team (and ability to leverage this team to grow the buyer’s business)
- costs that the buyer can reduce to improve profitability
Buyers who cannot clearly articulate why they’re interested in the business may take too long to conduct unnecessary due diligence and extend the process as they figure out their strategic rationale.
2. WHAT EXPERIENCE DO YOU HAVE IN BUYING AND INTEGRATING BUSINESSES LIKE OURS?
Buyers may be able to list off several transactions they’ve made over the last several years but sellers should also inquire into the buyer’s experience integrating the targets.
In the rush to get the deal closed, sellers sometimes overlook the integration process – but this phase remains one of the most critical steps to make the transaction successful.
The buyer should be able to articulate their plan for the integration – including not only how they grew the business, but also how they retained the target’s employees and management team.
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3. HOW WILL YOU FINANCE THE ACQUISITION?
Understanding how a potential buyer plans to finance the acquisition is crucial for business sellers.
This question helps you gauge the buyer’s financial stability and commitment to the deal. It also provides insight into the timeline and likelihood of the transaction closing successfully.
Inquire whether the buyer will use cash from their balance sheet, raise acquisition financing, or seek investment from other sources.
Knowing the financing plan ensures that the buyer has a clear strategy to fulfill their financial obligations, reducing the risk of delays or complications during the closing process.
4. WHAT TIMELINE DO YOU ENVISION FOR THE DEAL?
Getting the buyer to commit to a timeline ahead of the process is critical.
Transactions that start off being framed as a “short, easy process” can sometimes stretch into several months or quarters.
The seller should ask the buyer to provide an overall timeline for the deal – which includes establishing a timeline for the key milestones, and at the very least for:
- getting to a non-binding offer or LOI
- receiving the sale and purchase agreement draft
- final diligence
- closing
A deal could get extended beyond the original timeline but having a draft timeline puts pressure on the buyer to act quickly and to allocate the necessary internal and external resources to close the deal.
Many other areas will be important to cover as the deal proceeds, but these are some areas to check before launching into the process with a buyer.