7 “Red Flag” Comments from Buyer’s
You’ve had a successful business and determined it’s time to sell and retire. You’ve hired a business intermediary and the process has begun. You begin talking with individuals and acquisition firms. As part of the process you have initial conversations with your potential buyers.
As you get to know your potential buyers you want to listen for the following comments which may be considered “red flags”.
- “I’ve been casually looking”
When you ask a buyer how long he/she has been searching for a business they say, “I’ve been casually looking for a few months”. You want a buyer that is serious and wants to buy now. A casual buyer is just a tire kicker that will waste your time.
- “I’ll let you know where the money is coming from in due time”
You need to know the lending or investment sources from all potential buyers. If they can’t disclose how they plan to acquire your business, they aren’t a real buyer. Qualified buyers can demonstrate the ability to fund the deal.
- “I’ve had no prior business ownership experience”
This is not a deal killer, yet it certainly helps to know the person looking at buying your business has had some experience owning a business and that they understand the risks of being a business owner. Even if they have not owned a business, it helps having business owners in their family.
- “I know nothing about your industry”
Once again, this comment is not a deal breaker, yet you would prefer a buyer that understands your industry. If they don’t understand your industry, be prepared to train in your new buyer or know that you may need to stay on as a minority owner after the sale.
- “We’ll try to get you as much cash as possible at closing” or “we’re not quite sure how much cash we’ll provide at closing”
You don’t want to deal with a buyer that won’t give you a ballpark on cash at closing. A qualified buyer should have an idea of the amount of cash they’ll provide at closing.
- “I just started looking for a business”
You want a buyer that has spent time understanding what they want. A rookie buyer doesn’t know what they don’t know. Be careful locking up your business by signing a letter of Intent with a new, inexperienced buyer.
- “We’re not active on social media”
You want a buyer that has a digital footprint. If you don’t find anything about your potential buyer on websites, LinkedIn, press releases and announcements of past companies the buyer has acquired, I’d be concerned. A digital footprint adds credibility.
You and your business intermediary should be confident about your buyer prior to signing a Letter of Intent (LOI). By signing a LOI, you agree to take your business off the market for 30-90 days (depending on your agreement). Having confidence in your buyer is crucial at this step, because if the buyer doesn’t follow through, it can be extremely disruptive to put your business back on the market.
An experienced business intermediary will be able to vet your buyers to make sure you are engaging with the right person or persons. These tips are just the beginning; there are multiple signals that a buyer may say, do, or show in body language that can indicate their seriousness about acquiring your business.
Time is money, and you want to make sure your time is well spent with the buyer that will follow through on purchasing your business.
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.