Selling a Business – Be Prepared for Buyer Questions
If you’ve never had the pleasure, selling a business may rank as one of the most complicated and stressful events you’ll ever experience.
There are many ways to do it wrong, and a handful of ways to do it correctly. A first step is to speak with an experienced Sacramento business consultant like Andrew Rogerson. His advice and background in business sales in California will well be worth the cost. If you go it alone and make mistakes, you’ll be leaving money on the table. You’ll create a vast amount of added work for yourself while still trying to operate your business. Selling a business is a specialized skill, and you should work with an expert. He’ll sell your company quickly and for top dollar.
Sophisticated buyers with the type of purchasing budget you’d like to attract will have a systematic strategy for vetting companies. Part of that system will be uncovering the “special sauce” that justifies paying the premium they’ll be willing to pay for your business. Whether it’s a stable of dry cleaning locations, printing and publishing services, or your home furniture store won’t matter.
The viewpoint of the potential buyer is one of critical services that Andrew will bring to the discussion because of his years of experience working with people buying and selling a business in Sacramento. Consider the following questions that a prospective buyer will ask. Working through the answers with Andrew will help you gain valuable insight and intelligence on how to position your company to maximize the chances of a successful sale. It can also help you create a strategic vision for your company that you can share with the buyer.
What Valuation Method was Used to Determine the Asking Price?
Typically, the buyer and the seller will each conduct their own valuation of the business’ worth. Even so, the seller’s valuation method isn’t as critical to the buyer in determining a reasonable price for the company. Nonetheless, the seller’s valuation method of can become important when the buyer measures the owner’s rationale for the asking price.
Some sellers assess their company’s value with an asset-based valuation method because it’s the easiest way of valuation. It’s also the least accurate method of determining the value of a small business and it can frequently result in a lower valuation. Likewise, income capitalization methods are just as unreliable for small company valuations. Andrew recommends that sellers use a multiplier valuation method based on the owner’s benefit. If the buyer also uses this more accurate valuation method, both will enter negotiations in the same ballpark.
What’s the buyer’s plan to increase sales and grow profits?
A savvy buyer will have a strategic vision for the acquisition. This will be based on their past experience in the industry or lessons learned in their own business ownership. There’s a reason why such buyers what to purchase your company. They could have strategic relationships with manufacturers, fabricators, suppliers, or vendors that will give them cost savings, increased capacity, increased sales, or a competitive advantage.
The valuation of the business to a strategic buyer versus a non-strategic buyer will always mean a higher sales price. A savvy seller and his or her business consultant will target potential buyers based on their understanding of how strategic buyers view the business.
What disclosures should be included in the contract?
During the sales transaction, the seller will provide the buyer with disclosure statements, which are sometimes called “reps and warranties.” These are the assertions that a buyer and/or seller will make in a purchase and sale agreement. Failing to disclose critical information to the buyer — like the imminent expiration of a key supplier agreement — can result in a material circumstance that could stall the transaction or create a legal action after the sale. Sophisticated buyers will ask about these types of potential risks. They’ll request that legal language be included in the agreement to keep them from future financial losses.
Andrew will help you become a savvy seller and analyze the business in preparationfor sale. This process will result in a full list of disclosures to be given to the buyer up-front and proactively. This will help mitigate any question of possible missing data or misrepresentation.
Disclosure statement preparation during the pre-sale evaluation process can also help you discover areas in which to increase value. This can help you address a small concern and create a value proposition.
Why Do You Want to Sell?
Of course, there are numerous reasons why a seller wants to sell. Rather than responding with a boilerplate answer from the “seller’s playbook,” you should work with Andrew. He’ll help you position your business and your reasons for selling so that you give all indications that the business is sound. A buyer might devalue the company if they sense that your reasons are not well-thought-out or that you’re in a hurry. It’s raising red flags.
Finally, consider your exit strategy several years before you actual plan to sell. A sophisticated buyer may ask you about this or the company goals to determine whether your company achieved what it set out to do years before. Exit planning is crucial, and when accomplished correctly, can also bea component of increased valuation.
Andrew is a business expert and has negotiated hundreds of business transactions in cities throughout the Sacramento Region. He’s worked with business owners in Citrus Heights, Rancho Cordova, Folsom, Elk Grove, Roseville, Rocklin, Davis, El Dorado Hills, and Cameron Park. Andrew can help you with deciding on an appropriate buyer and answer all of your questions.