The due diligence process when selling your business can feel like an interrogation, with questions you hadn’t thought of or prepared for. Certain questions may leave you wondering why they were asked and if you answered correctly. To make sure they understand the investment and true value of your business, most professional acquirers will have a checklist of questions they need answered if they’re considering buying your company. Below we dig into the types of things potential buyers may ask to get a sense of the company’s operations and dependence on the current owner.
Be Prepared to Answer These Questions Before Selling Your Company
The acquisition process can get intense, and it’s important to have the basics covered, and answers to not-so-obvious of questions, including:
- Are your ideas, products and processes protected by patents or trademarks?
- Do you have consistent, signed, up-to-date contracts with your customers and employees?
- What kind of technology do you use, and are your software licenses up to date?
- What are the loan covenants on your credit agreements?
- When does your lease expire and what are the terms?
- How are your receivables? Do you have any late payers or deadbeat customers?
- Does your business require a license to operate, and if so, is your paperwork in order?
- Do you have any litigation pending?
In addition to these objective questions, they’ll also try to get a subjective sense of your business. In particular, they will try to determine just how integral you are personally to the success of your business.
Is the Business too Dependent on the Owner?
Subjectively assessing how dependent the business is on you requires the buyer to do some investigative work. It’s more art than science and often requires a potential buyer to use a number of tricks of the trade, such as:
Tactic #1: Meeting Changes
An acquirer may ask to make a last-minute change to your meeting time to get clues as to how involved you are personally in serving customers. If you can’t accommodate the change request, the acquirer may probe to find out why and try to determine what part of the business is so dependent on you that you have to be there.
Tactic #2: Asking About the Vision
An acquirer may ask you to explain your vision for the business, which is a question you should be well prepared to answer. However, he or she may ask the same question of your employees and key managers. If your staff members offer inconsistent answers, the acquirer may take it as a sign that the future of the business is in your head.
Tactic #3: Getting a Pulse on Your Customers
A potential acquirer may ask to talk to some of your customers. They will expect you to select your most passionate and loyal customers and, therefore, will expect to hear good things. But the customers may be asked a question like ‘Why do you do business with this company?’ The acquirer is trying to figure out where your customers’ loyalties lie. If your customers answer by describing the benefits of your product, service or company in general, that’s good. If they respond by explaining how much they like you personally, that’s bad.
Tactic #4: Undercover Shopping
Acquirers typically conduct some initial research before you even know they are interested in buying your business. They may pose as a customer, visit your website, or come into your company to understand what it feels like to be one of your customers.
Make sure the experience your company offers a stranger is tight and consistent, and try to avoid personally being involved in finding or serving brand-new customers. If any potential acquirers see you personally as the key to wooing new customers, they’ll be concerned business will dry up when you leave.
The due diligence process can be daunting and leave you feeling unprepared to sell your business. Anders can help ensure you’re prepared for potential offers and evaluate the right opportunity for you and your business. Learn more about our Business Transition Planning or contact an Anders advisor below to get started.All Insights