Be prepared to answer the buyer’s questions and to host onsite inspection of your business.
Objective
Overcome buyer objections and concerns; move them to submit an acceptable offer.
Tasks
Give the buyer a tour of your business after hours, so it does not tip off employees or customers. Put your best foot forward. Anticipate every question and subtly reinforce why your business is a good match for the buyer. Do NOT take the buyer for granted or assume their interest is a foregone conclusion.
Your task is to make the buyer fall in love with your business. Your task is to have them foreclose other opportunities and zero in on buying YOUR business. Your task is to move the buyer from being interested to being committed, by making you an acceptable offer.
Best Practices
Businesses are not acquired, they are sold. After you qualify a prospective buyer, it is their turn to qualify YOU. They will want to inspect your business, usually in-person, by taking an onsite tour. They will be looking for flaws and problems. They will be looking for reasons to quickly say “no,” so they can move on to other opportunities. Even if they like your business, they will be looking for things they can use to negotiate a better price.
Consider this step to be the initial stages of due diligence, discussed in detail in Step 12. A smart buyer is not going to invest time and money in due diligence until they have further qualified your opportunity and inspected your business. This may involve multiple phone calls, one or more meetings with you face-to-face, and touring your facility. Seller qualification and initial inspection typically happens very quickly after the buyer has signed your NDA and read your Selling Memorandum.
In fact, if things go well you may be engaged with multiple buyers at the same time who are conducting seller qualification and initial inspection. That puts you in the driver’s seat. That’s how you get multiple bidders to the table. There is absolutely nothing wrong with creating a sense of urgency among buyers by informing them that you are currently meeting with other buyers who have signed an NDA and are also inspecting your business.
If a buyer is dragging their feet after signing your NDA and getting a copy of your Selling Memorandum, it’s usually a sign that they are not serious. They may have slipped through your buyer qualification procedure (Step 8). If they haven’t asked for more information and scheduled an inspection within thirty (30) days, you should recall the Selling Memorandum. Your NDA gives you the right to do this. They either must return it or destroy it. Get them off the fence or disqualify them as a serious buyer.
The primary objective of the buyer is to get the info they need – usually your financials — and to SEE your business, in order to make you a reasonable offer. Do NOT let them drag this process out or try to conduct full-on due diligence BEFORE making you an offer. You don’t want to find yourself in a situation where you have spent a lot of time with a prospective buyer and then they make you a ridiculous offer.
Limit this step to the following:
- Provide any reasonable and relevant information they request that was not in your Selling This should NOT include your customer list or talking with your employees. It’s too early for that; you don’t yet know what kind of offer they might make. Limit information disclosure to financials, products and intellectual property, staffing, and high-level operational information about your business.
Do not hesitate to decline providing certain information. Be clear that you only want to engage with buyers who are serious, motivated, and prepared to make you an acceptable offer. Let them know you will make everything available in the due diligence phase, assuming their offer is acceptable.
- Agree to one or two phone calls to discuss their interest, criteria, time frame, and plans for financing the acquisition of your business.
- Agree to ONE on-site Make sure the place is clean and your records are in order.
- Insist upon an offer before engaging Again, some people will want to talk, talk, talk….ask for more and more information…and generally drag the discussion out. It’s in their interest to do so, but never in your interest! Time is always on the buyer’s side.
If they have not submitted an acceptable offer (see Step 11) within fourteen days of a face-to-face meeting and/or an onsite inspection, refuse to engage further and focus on other buyer prospects. A serious buyer won’t waste their time or yours. Tell them to fish or cut bait. Even if you have no other prospects at that time, you must act as if you do.
Tools and Tips
A few final tips for hosting an initial inspection and passing the buyer’s qualification process:
- Remind the buyer of their duty of confidentially and non-disclosure. Insist they not share the fact you are selling or disclose any confidential information on your business with any party who is not covered by the
- Have your facility clean and ready to show after
- Have your records in Most of what a buyer wants at this stage is documentation.
- If location is important to the success of the business, expect them to “mystery shop” your business during business Make it clear that if they do this, they are NOT to engage with your customers or employees, other than as a customer. If they do, they are risking violation of the NDA and may incur liability.
- Expect the buyer to involve their broker or other intermediary to help them qualify and inspect your business. Treat these intermediaries as you would the They will make recommendations to the buyer that may determine whether or not they submit an offer and the price that is offered.
- Review the Best Practices and tips in Step 12, Due Diligence. Some issues and concerns of buyers may be raised early, in the inspection phase, rather than in the due diligence phase. Be prepared for anything. There is not a fine line between steps 10, 11 and They can happen simultaneously or in quick succession.
- Remember, the objective of this step is to get an offer — for both parties to determine if it’s worth the time and effort to go through the due diligence Do NOT allow the buyer to initiate full blown due diligence until they have extended you an acceptable offer!
Summary
The purpose of seller qualification and initial inspection is for the buyer to decide whether to make you an offer and invest the time and expense of due diligence. To make this decision, they may need additional information not provided in your Selling Memorandum. They will likely want to talk with you on the phone or meet you in person. They will likely want to tour your facility.
You should be prepared for these discussions and requests. You should be prepared to have the buyer or the buyer’s intermediary tour your business. After providing the information and hosting the initial tour, you should insist the buyer make an offer before engaging with them further. Both parties must have a meeting of the minds on valuation in short order, before investing additional time and effort to pursue a deal.
Examples
- Inspection Checklist
- Management Qualification Meetings and Calls FAQ