Screening Prospective Buyers
Screening & Qualifying Business Buyer Prospects
Selling a business requires the screening and qualifying of buyer prospects before the business’ identity and financial reports are disclosed.
When buyer prospects are screened and qualified before they know about your business, it protects you, the business seller, from needless disclosure of information that should remain confidential. It also saves you enormous amounts of time. It may be the main reason you hire a business broker.
Screening to Protect Confidentiality
You need to keep your business sale efforts confidential. Businesses for sale can become “shopworn” and even “damaged goods” when too many people know about it. For us, buyer screening means we find out who they are before we disclose who you are. If they’re not the ones we want to tell, we don’t tell.
The more people who know your business is for sale, the more likely your business-for-sale campaign will lose momentum. It becomes “old news.” A buyer’s potential keen interest in your business, and the strong motivation to acquire it, is replaced by questions about why it hasn’t yet sold, and doubts about its future. A buyer may think, “What did the previous prospects know that I don’t know?”
Your business can also suffer real harm if buyer prospects are not screened. If employees find out, they worry and begin to speculate about their own futures. Customers may begin to look for alternatives. If landlords and creditors find out, they may act prematurely to protect their interests. Competitors may begin to contact your worried employees and alternative-searching customers. They may even contact your landlord to inquire about the availability of your space!
Qualifying to Save Time
During the sales process, you also want to use your time wisely. You have a business to run! If you personally meet with every prospective buyer, you will never have enough time. A buyer coming to Maine to meet you and see your business can take up an entire day of your time! And, that’s just the first meeting.
Only 2% to 2½% of business buyer prospects actually ever actually buy a business. That means going through 40 or 50 “lookers” to get just one “keeper!” This is the broker’s job, not yours.
Fielding buyer emails and phone calls, spending hours in meetings with them, and answering the same questions repeatedly are only tolerable for business brokers with systematic ways of handling this volume. There are more than 500 buyer prospects actively looking for a Maine business on any given day, and we have the systems to keep track of them.
When buyer prospects call, their purpose is to eliminate your business from their list. Yes, ELIMINATE IT. It’s easier if your business is NOT a match for them. It saves them time. The only way to field this call is with enthusiasm and the kind of preparation that gets their attention. That’s how we do it. “You want to buy a business in Maine?” we ask. “Great, you’ve come to the right place.”
We can’t get so carried away with our enthusiasm, however, that we forget to qualify them! Most prospects aren’t qualified for what they call about. It takes practice to remain positive while finding out who they are, what they know, and what they have to spend on a business without telling them what and where it is, until AFTER we know they are qualified.
“You understand, of course, that we are the gatekeepers for our sellers,” we say. “You can go online and fill out our Buyer Registration Form now, if you want. It’s only two pages and there is no fee or obligation to work with us, but we need you to complete it before we can tell you anything about the business.” Actually, many go to our website and register with us BEFORE they call.
Buyer prospects – especially the wealthier individuals and large corporate acquirers – often actually prefer to work through a broker. At the same time we protect our seller clients from time-wasting buyer prospects, we also protect the buyer prospects from sellers who might waste their time. Qualified buyers really don’t want to work with sellers who are not prepared with the business information and relevant answers to key questions, so the process can move forward quickly. It’s our job, as brokers, to help sellers prepare for a sale. Many buyers appreciate this.
If the buyer can’t or won’t agree to confidentiality – or if there is some other question about whether or not our seller client would want to talk to them – we don’t move forward to disclose our seller client’s identity until after we get our seller client’s permission. As gatekeepers, we often have to deny some individuals and companies access to basic information. Many are competitors or just curious “lookers.”
If your competitor or employer was passing out free information about his business for sale, wouldn’t you be happy to have a copy? Of course you would! Some of you would cringe at the idea of posing falsely as a buyer prospect, but many are not so well-mannered!
Buyers Need Direct Contact
There is more to it, though, than just having buyer prospects fill out forms. They usually have no problem signing the confidentiality agreement. Their understanding of how the process works, however, and the needed disclosure of their background and financial information, is usually pretty sketchy at first.
It takes face-to-face meetings to really get to know buyer prospects, and to brief them on the process. Often, it starts with a phone interview. It’s better if they pass “the show-up test,” and come to our office for the first meeting with us. This is, ideally, BEFORE they go to meet a seller client of ours.
What we look for in buyers is financial strength, of course. But, we also want to know that buyer prospects have the skills and talents needed by the business, that they are prepared to make decisions to move forward if they like what they find, and that it is the right time in their personal or corporate lives for such an acquisition.
Finally, there truly is a “time for every purpose.” It’s time to buy and sell when you are stable enough to be well-organized and focused, clear about what you want, and ready to make the move. Helping companies and individuals get organized, focused, clear and ready is what we do. Recognizing when that can happen in a business sale comes with the experience that is only gained after many transactions.
The ideal buyer is…
Able to decide quickly what to buy and how much to pay for it.
Skilled in sales, marketing and management.
Has money for down payment, working capital, transition and mistakes.
Stable enough to be organized, focused, clear & ready.
Decisive: People who can make quick decisions fare better in the buying process as well as in the day-to-day practical management of small business. Slow decision makers may make better decisions, but they miss too many opportunities.
The ability to make a decision to buy a business is a trait we like to see in a buyer prospect. Some companies and individuals make decisions more easily than others. Unfortunately many corporate as well as individual buyer “wanna-bees” are much better at analyzing every last detail of your business than they are at making a decision to move forward. You need protection from the over-analyzers.
Skilled:The best qualifications are sales skills. Then marketing. Then management. Professionals and other who like a safe and structured environment are usually not good prospects. The chaos of small business frightens them.
Understanding a buyer’s acquisition criteria and skills and matching them to the business we will present to them is critical. Our seller clients are often very particular about who is looking at their business, particularly if there is going to be any seller financing. If it’s a corporate prospect, knowing what this other company brings to the table in personnel and other resources is critical. Knowing about an individual buyer’s complete background, including their education, skills, interests, hobbies and family details informs the sales process.
Capitalized:Yes, you know it takes money! To be taken seriously, buyers need to have enough cash for the down payment and working capital, as well as “moving-to-the-business-location” money and “we-might-make-a-mistake” money.
Knowing how much money a buyer prospect needs means we have already done our homework on the business we are offering for sale. What financing is available? How much down payment is needed? How much working capital? What additional closing and transition costs will a buyer incur? Why should a buyer buy this business? How much money will they make when they do?
Stable: Buyer prospects that have recently been through life-changing events that have shaken their self esteem may not be your best prospects. Individuals and companies in turmoil won’t bring the needed strengths to your business-for-sale transaction. The individual who just got fired and the company who looks to acquire your company to solve their problem are NOT necessarily good prospects. Stable people and companies are ones with obvious strengths that you can discover as you find out more about them.
Consistent profitability. Well trained staff and a variety of e-commerce clients.
The cyclical nature of the economy can add uncertainty to the timing of an acquisition, or an exit from a business. However, unlike the clarity of an improving economy or the risks inherent in a downturn, buying or selling at a market high creates a unique set of challenges.