David Tobin is the founder and managing partner Tobin Leffan M&A and exit planning advisory firm.
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When it comes time to sell your business, putting yourself in the buyer’s shoes is imperative if you want to anticipate the many questions they are likely to ask you. Good answers will help you increase your selling price. Based on my experience helping 150 business owners with exit plans, mergers and acquisition transactions, below are nine frequently asked questions to prepare for.
1. Why do you want to sell?
A potential buyer wants to know your motives, your intentions and your vision for the sale, so state the reasons in advance. Customers will sense if you are tired or burnt out. If you’re undercapitalized, buyers will see it in your financials. If you have the energy to be part of a larger enterprise, customers will feel it. Be transparent about your reasons for selling your business.
2. What is so special about your business that I can’t find elsewhere or build myself?
Most owners will claim that they are a “different type” of company, obsessed with customer service, have proprietary technology, run a “family” culture, etc. But what is truly special about them? And what is truly unique about you?
There are countless reasons why buyers will pay top dollar for a job. To maximize your exit payout, you need to show customers what’s great about your company. For example, have you developed a business formula that consistently generates 25% profit margins? Are you a recognized market leader for certain products or capabilities? Do you have intellectual property? Articulate your vision and unique value proposition.
3. How much does the job depend on you?
If your business is overly dependent on you personally, the contract will have more terms and you will be required to stay involved longer to ensure the transfer and sustainability of the business.
Most business owners know the importance of delegating and developing processes for running a business. Involve others as much as you can. Quantify and document when others generate leads, help win new business and keep accounts. Step away from the day-to-day tasks of leadership. Show that the company can thrive without you.
4. How good are your people?
Customers know you can’t do great work without great people, so they’ll pay close attention to the caliber of your senior staff when evaluating your company. Are your senior people recognized as leaders in the markets in which you operate? Do major clients rely on them? Can they bring in big bucks?
5. Will our cultures and values be compatible?
There are two aspects of your company’s culture that buyers will scrutinize during preliminary interviews: the nature of your internal culture and whether your culture and values are compatible with theirs.
Culture is a means to an end—making profits—and, like any other aspect of business, it can and should be measured. Do you have a lower than industry average turnover rate? What do employee surveys reveal? What does a visitor feel when they enter your office? What is energy flow?
6. Is there a risk of client concentration?
Every business owner with an 800 pound gorilla customer is desperately trying to minimize the percentage of work being pulled from that account, but that’s easier said than done. No one turns business away from their biggest client, so the only way to reduce dependency is to increase business from other accounts. If you serve multiple business units with different decision makers within a gorilla company, the risk can be reduced and your M&A advisor can promote this fact. Ideally, no single customer should account for more than 20% of revenue.
7. How do you create new jobs?
If you’ve really built your business to be ready to sell, you should be able to show customers that you have a proven process for keeping your pipeline full. Document your techniques and the results achieved by your sales/marketing efforts. Use this as another opportunity to confirm that the new business is moving forward without you.
8. How can we develop the company?
The reason sophisticated buyers pay high numbers is because they see how the acquired company can grow and increase the value of their company. Develop and document strategic growth plans. Help potential buyers and investors see opportunities for growth—both top and bottom.
9. How can I be sure that the company will continue to thrive under new ownership?
Customers want to know that your business is sustainable and portable. Business sustainability starts with sustainable leadership so speak with conviction if you want to stay involved and brag about how good your people are. Reiterate the power of your client relationships, steady streams of income, and the systems you’ve put in place to generate new business.
Businesses built for sale are businesses with proven, sustainable business models. The companies that make the most money are those with unique value propositions that have the potential for growth. Have great answers to the questions customers commonly ask and you’ll be in a position to maximize your exit payout.
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