8 Questions You Most Likely Will Be Asked When Selling Your Business by CABB member, Tim Cunha (SF Bay Area Business Broker)
When selling your small business, you'll be bombarded with questions - from the brilliant to the ridiculous.
You need to be prepared for them all. The more you're prepared the better experience you'll have with potential business buyers.
1. Why would you want to sell your business?
Although, as a business broker, I tell business owners that the "best time to sell is when you're doing well," buyers always want to know the "real reason. My response usually is simple: it's the right time for the seller because of retirement, a move to another locale, or another business opportunity they want to pursue. And then I ask the buyer a simple question: "Would you want to buy a business that isn't doing well?"
2. What does it cost you to acquire a new customer?
The buyer wants to know if you have an economical, practical, scalable, and sustainable system and process for getting new customers.
3. What is the extent of your market penetration?
The buyer, being interested in future growth, needs to understand how big the current market is and what percentage of it you already own. And, how can that market be expanded, vertically and horizontally?
4. Who are the buyers of what you're selling?
Strategic buyers - those already in your industry - are looking for potential synergies between what you sell and what they sell. Knowing the details of your customers' demographics, you will be better equipped to help a buyer assess a strategic fit.
5. How do you produce, acquire, or process what you're selling?
By asking this question, potential buyers can assess the uniqueness and distinctiveness of your method of creating whatever product or service you make or deliver. Prospective buyers need to learn if you have proprietary systems or procedures that make you stand apart and would be difficult for a competitor to replicate. The more unique you are, the more valuable you may be. For obvious reasons, they will want to know if any of this unique or proprietary value depends on any one (or more) specific persons.
6. What (if anything) makes your product or service unique or special?
Knowing if there are aspects of your business that will protect the buyer from current and potential future competitors is vital to their assessment of your value. What, if anything, have you done to distinguish yourself from and protect yourself from the competition?
7. What are your operations and management processes?
Depending on the type of buyer, they are going to want to know how easily they can take over day-to-day and strategic management, or integrate it into their existing operations. They will want to know how you manage your bookkeeping and finances, marketing and sales, purchasing procedures and vendor relations, procedures for managing materials and inventory, and methods for producing and delivering the product or service.
8. What employees are essential to your team? ... to future success?
Any potential acquirer needs to understand the dynamics of your team—how deep is "the bench?" They need to know who are the key players, what motivates them, and how they will be incentivized to stay with your business once you are no longer the owner.
This list is not exhaustive, but it is a good insight into the kinds of questions you, and your broker, need to be prepared to answer to properly represent your business to prospective purchasers.