Top Questions to Ask the Potential Buyer of Your Business

Mike Ginsberg

You built a successful business and decided it is time to sell. You and your leadership team worked hard preparing the company for the selling process. You prepared the owners and your leadership team for what your life might be like after the deal closes. You expect the buyer will ask for a lot of information and you’re ready to respond.

Most sellers anticipate being on the receiving end of a due diligence process. While this is accurate, I strongly encourage owners and executives to reverse the diligence process on the buyer and find out as much as possible, as early as possible, to avoid investing enormous time and energy toward something that you can determine early on won’t prove to be beneficial.

Here are my top 4 questions for a business seller to ask a potential buyer:

1.       What is your reason for making an acquisition?

Some buyers like to stay the course and acquire businesses that fit exactly within their own business’s profile. If they provide collection services, they prefer to buy another collection agency that extends their client base or geographic coverage. They view acquisitions for expansion purposes and the buyer knows there will be synergistic cost savings when making vertical acquisitions. Other buyers use add-on acquisitions to diversify their service offerings, knowing that cross-sell opportunities typically exist between theirs and the sellers’ client base when they make horizontal acquisitions. Run away from the buyer that says “I want to take a look” and focus on the buyer that clearly knows what they want to acquire.

2.       How will you finance an acquisition?

This important question subtly implies to the buyer that you expect some cash at time of closing. You will learn very quickly if the buyer plans to structure your deal with an earn-out and/or your own seller equity financing the transaction. Their answer will also allow you to gauge how experienced your buyer is, especially in today’s capital markets where securing financing is challenging and time consuming.

3.       What is your due diligence process?

It is critical that you word this question appropriately. Keep it open-ended initially and use their responses to drive additional Q&A, take notes and hold them accountable when the diligence process deviates from plan. Here is an example of an exchange between seller and buyer:

Seller: Please explain your due diligence process to me.

Buyer: (Fumbling around to find a starting point) First, we will ask you for a list of data points for you to reply to us for our review.

Seller: Can you send me the list so I can review the questions now?

Buyer: It will take me some time to put this together for you (red flag because experienced buyers should have a general diligence questionnaire ready to go).

Seller: Who from your office will review my information?

 You get the idea. An experienced buyer will be crisp with their responses and will have the battle wounds that show their experience level. If you find the buyer lacks experience, know the diligence process will take longer and be more gut-wrenching when compared with an experienced buyer of businesses.

4.       My favorite: Can you put me in touch with the owners of companies you acquired?

What better way to learn the good, the bad, and the ugly of your buyer’s acquisition history than talk to the owners of businesses they purchased. Ask the owners of the businesses that your buyer acquired about the diligence process to determine if it was disruptive to their business. Find out what the owner(s’) role was post –closing and how it is working now that the honeymoon is over. Ask what happened during the acquisition process that the seller was not anticipating. We have a saying that the shoe will drop during the sale/acquisition process. Expect it. It happens during any long courtship. Finding out why it happened with completed transactions allows you to potentially avoid stepping into the same potholes yourself.

Selling a business is not easy and many business owners only go through it once in their lives. Reversing the process on the buyer allows the seller to feel comfortable releasing confidential information to a buyer candidate they already qualified.

If you’d like to confidentially speak with Mike Ginsberg, President and CEO of Kaulkin Ginsberg, about your business’ needs, please contact us.