pursuing the sale of your company, it is important to be
prepared. Being prepared not only means getting your books
& records organized and preparing a quality descriptive
executive summary of your company, it also involves educating
yourself to properly address the common questions of prospective
following are some of the most frequently asked questions
posed by potential acquirers, along with suggestions on
how best to address them. Never fabricate answers even if
you perceive the truthful answers to be a "negative"
toward selling your business. Assume that the truth will
be revealed during due diligence and there is no way to
recover from being caught in a lie or gross exaggeration.
Proper presentation of these issues at the outset can minimize
the negative impact on the buyer’s perceived value of your
Why are you selling your business?
are always concerned as to the actual motivating factors
behind the sale of the business, to verify that no "hidden
agenda" exists. A prospective buyer would typically
prefer a situation in which the seller is of retirement
age and does not have any children working in the company.
There are many valid reasons to sell a business at a young
age (health, divorce, relocation, burnout), however it is
more challenging to provide the buyer with a comfort level
as to the motivating factors, when it is not as obvious.
You should be comfortable and confident when articulating
your reasons for wanting to sell.
will happen when your customers realize that you sold the
Acquirers are fearful of the customer goodwill that resides
in an owner - and the risk factor that it may evaporate
or erode once the owner sells the business. Small and mid-market
client relationships are often built on strong personal
relationships. The acquirer must assess the ability and
likelihood of transitioning ownership without alienating
customers. To the extent that a reliance exists, it is key
to educate a buyer that the business is not dependent on
any one or two major customers. You must be prepared to
address questions relating to sales concentration or percentage
of sales by customer.
the event that there are a few large customers representing
a large percentage of the business, it is critical to let
the buyer know that you will devote a significant amount
of time to work together with the buyer following a sale
in order to adequately transition these relationships. If
appropriate, demonstrate that the primary reason for customer
loyalty and longevity is due to the level of quality, service
and/or pricing and not merely because of your past relationship.
Furthermore, it would be helpful if you can show that the
employees have the primary contact with the customers or
that there is a reason for that the customer is just as
dependent on maintaining the business relationship with
are the key employees?
A primary objective is to verify that there are sufficient
people and processes in place to manage the firm after the
departure of the current owner. A secondary objective can
be seen in the re-phrased question: "Is all or part
of the business dependent on any of the employees, and what
happens if they leave?" Buyers have to be concerned
that the company retains the personnel required to operate
to historical standards after the sale.
existence of non-compete agreements helps address this concern.
In the absence of non-compete agreements, your answers must
address the lack of dependence on the employees and the
ability to replace key employees in the event they choose
to leave the firm.
your employees feel the greatest amount of insecurity at
the prospect of a sale to a 3rd party; therefore it is important
that the buyer be educated as to the ideal timing of the
news coupled with your presentation of the long-term benefits
provided by the new ownership. The acquirer must then provide
the necessary reassurances as to what to expect following
has the business been increasing (or declining) in recent
Acquirers will always look for trends in the
sales, gross margin and profitability of the business. Although
there is no guarantee that the past predicts the future,
it is a reasonable starting point to forecast (and value)
the business for transactional purposes. Buyers will generally
assume that these positive or negative trends will continue.
In cases where there was been a downward trend, be prepared
to identify the reasons for what took place in the past
and why this trend may (or may not) turn around. If interim
year-to-date sales and profits are increasing, be sure to
highlight the story behind the numbers.
do you project the revenue to be in the coming year?
Be prepared with sound projections based on reasonable assumptions.
Be careful not to be too aggressive or unrealistic. This
could lead experienced buyers to suggest that a portion
of the purchase price be contingent on these projections
materializing following the sale. It is always preferable
to have an acquirer be positively surprised by interim results
during the process. Also be careful to distinguish forecastable
growth from existing products and services to the "theoretical"
growth from a new offering that has yet to be proven.
there growth potential and how do you suggest that I expand
This is an important question when considering the viability
of a purchase. Businesses are usually bought with the intent
of growing them to higher levels of sales and profits rather
than maintaining a stagnant position. If buyers don't believe
they can expand the business, most will not be interested.
As a seller it is critical to present the most viable expansion
opportunities for the business. Be careful not to over do
it because the less viable expansion opportunities will
tend to dilute the more likely methods.
to four ideas listed in order of importance will suffice.
A typical follow up question will be "why haven't you
pursued these expansion strategies?" -so be prepared.
It is perfectly acceptable for the seller to share that
at this stage, they have been comfortable with the size
of the company and expanding the company has not been a
priority. Another acceptable reason is that you may not
want to take the risk of making significant financial investments
to expand the company. If that were a valid reason, it would
make sense to be able to identify what opportunities exist
for an acquirer that is capable and willing to commit the
capital necessary to take the business to the next level.