4 Critical Questions Most Buyers Never Ask Business For Sale Owners – Forbes

4 minutes, 31 seconds Read
image

I have sat in on hundreds of meetings between business buyers and sellers and it still astonishes me how unprepared most buyers are when the time comes to meet the seller in person. Buyers generally do not do enough homework to have a good understanding of the industry, its challenges, key metrics, and other items in advance. As such, they are at the complete mercy of the seller for their information, which can be a very dangerous position.

The single most important strategy when meeting the seller is to have a meaningful conversation so the relationship gets off to a good start. Instead, most buyers come barging into the meeting with a list of standard questions that any ten-year-old could formulate. As a buyer, you want to get to the guts of the business. Having thought provoking questions that get to the real issues and knowing the answers to look for requires expertise and can make the difference between you making a sound decision and buying a good business, or having the owner sell you a bunch of garbage.

For this article, I want to address some questions that every buyer should ask and why.

# 1 – The Obvious One – Is Not So Obvious – Tell Me About Your Business.

While the question may seem obvious, the answer that buyers accept still astonishes me. As a buyer, you are looking for a data driven answer that will indicate a seller’s handle on their business. If they tell you that business is ‘good’, or ‘great’ or whatever, that is useless. Seriously, what does that even mean? You want a crisp answer that identifies quantifiable data points that they can articulate regarding the exact percentage the business is up or down versus last year, same with margins, order log, customer quotes out for bidding, and any other meaningful metrics. Many small business owners simply do not have a pulse on their business. they run it by gut feel, or it is on cruise control, which is often the case when they take it to market. A seller that provides detailed data and metrics is one who likely has good books and records, they measure results, and likely have a staff that understands the targeted results, and they are all rowing in the same direction.

# 2 – How Much Vacation Do You Take?

No, you are not looking to start planning your time off before you even own the place. Rather, the seller’s answer to this question will dictate whether they micromanage the business, or if they are the business, or how capable the staff may or may not be. A seller that takes very little vacation either cannot or does not trust the employees. This can be an opportunity for a new owner, but it can also mean the wrong staff is in place, and you certainly do not want to buy an existing business and then have to replace too many team members. That defeats part of the reason for buying an ongoing business altogether.

# 3 – What Keeps You Up At Night About The Business?

No matter how well the business may be doing, it is in the DNA of an entrepreneur to always be thinking about their business, and this includes the threats, or issues that concern them. Keep in mind what concerns the seller, will concern the buyer exponentially more because the buyer does not have the seller’s familiarity with the issue.

Advance preparation for this question is fundamental before meeting a seller. For example, if you are considering the acquisition of a tree trimming business, a simple search of the keyword ‘what are the biggest problems with tree trimming businesses’ will yield very helpful results. You will see that recruiting/training/retaining staff are one, equipment maintenance, breakdown and replacement are others. Keep these in mind because if the seller does not touch on them when you ask this question, yet it is an industry-wide issue, then bring it up because you know it is an issue, but they may not want to disclose it.

# 4 – My Favorite – What Happens If You Get Hit By A Pepsi Truck?

Sadly, not too many owners give this question enough thought. In cases where stuff like this actually happens, their family and staff are left picking up the pieces and often the business simply closes. The answer to this question will indicate whether adequate processes, procedures, and systems are in place. It will dictate the caliber of the employees and especially if there is a second level of management. In cases where the seller is stuck for an answer, you will know exactly what is in place, or rather what is not; all the key infrastructure and systems to carry on. Is this a deal killer? Not necessarily. It may be an opportunity, but you the buyer must understand what you are walking into if you buy the company. More importantly, you must be certain you can remedy these issues quickly. After all, that Pepsi truck may be around the corner.

If and when you meet with a seller, of course you need to cover the main issues, but preparing in advance, asking these four key questions, and knowing what answer to look for, will give you incredible insight to what is really going on in the business, and that is something that not every seller wants you to know, or will even divulge.

This post was originally published on 3rd party site mentioned in the title of this site

Similar Posts