How to Screen Buyers Before Closing a Deal
Every financial decision you make in business and life is only as solid as the people you partner with. This is especially true in deals with elevated stakes, including your decision to sell your business. It’s not just a matter of announcing your pending sale and reviewing multiple parties. Instead, it’s the challenge of finding the right buyer to sell to.
What steps can you and your business brokers take to set up an effective and fair screening process? Here are a few ideas.
Confirm the Capital
Financial vetting is a crucial step in lining up a potential buyer. Your business broker analyzes interested parties to verify their access to capital, whether through funding or pre-approved loans. They can also uncover pitfalls early on, like unclear financials or delayed or questionable documentation.
Validating a buyer’s financial capacity legitimizes their prospects. It can deter the buyer from making lofty promises and stop wasting time on offers that can’t be completed.
Analyze Strategy and Motivation
Why is the buyer eager to take over your business? Are they positioning for growth and expansion? Do they have the relevant experience and expertise to maintain your business’s operations and good standing?
Buyers with good intentions may still be uncertain or unclear about their motivations. Learn what you can about their strategy, the nature of their interest, and whether they can keep the business running and preserve its legacy.
Evaluate Operational and Management Abilities
How does your prospective buyer conduct business? Do they work in an industry relevant to yours? How do they propose to handle staff management, customer relations, and the specifics of your business operations?
Lack of experience in buying a business isn’t necessarily a deal-breaker, but it must be carefully scrutinized. Experienced business buyers are more likely to understand the inner workings of their industry. They’re also in a better position to secure financing and facilitate a smoother turnover process. Determine whether their style and abilities in business operations and managing others fit with yours.
Maintain Confidentiality and Professionalism
Nothing jeopardizes a business deal more swiftly than the leak of sensitive information. A qualified buyer will have no problem signing a non-disclosure agreement (NDA) before negotiations begin. If they balk, consider that a major red flag.
There’s also something to be said for keeping an air of professionalism in the business sale process. A steady demeanor and clear communication style go a long way in identifying a partner’s seriousness about their business. Your business broker should be able to filter out casual shoppers from legitimate contenders.
Sealing the Deal With Assuredness
Buyer screening ultimately protects all parties in the sale of a business. It helps preserve the seller’s business value and reputation. It reassures returning employees that new management will take over smoothly and maintain operations. It’s also good for the buyer, allowing them to proceed with negotiations with their reputation understood. When you’re ready to sell your business, talk with your business brokers about their process for screening buyers and how it has worked in past deals.
