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Top Mistakes When Selling A Business, Part 4: Selecting the Wrong Buyer

10
Apr

In this series of articles, we are going over the top mistakes business owners make when they decide to sell their business. (Don’t forget to check out Part 1, Part 2, and Part 3.)

ISS_10326_05374-300x200 Top Mistakes When Selling A Business, Part 4: Selecting the Wrong Buyer Blog

Selling a business can be an overwhelming decision. However, proper preparation and a systematic approach can help you find the right deal for your business without much hassle. Making the right decisions at the right time and learning from the mistakes of other sellers can lead you to actually selling the business, and ultimately landing the desired deal.

Deadly Mistake: Selecting The Wrong Buyer

It is important to address these mistakes well before moving forward with the sale of the business. The fourth deadliest mistake most sellers make is selecting the wrong buyer for their business. When looking for a buyer for your business, you must know what to look for. Are you willing to sell your business to anyone who offers you the right price? Is it a meaty enough offer?  More than likely you have been instrumental in the success and longevity of your business. Surely, you do not want your company to end in the hands of an owner who does not know what to do with your business.

It is essential to find a buyer who has the expertise and experience to run your company effectively. It is not only important for the future of the company, it can also dictate whether or not you will get the money you were offered. This is especially true if you end up having to finance the deal. When you do this, you also take on all the inherent risks of such a decision.

The buyer is supposed to earn money running the newly acquired business and that is how they are going to pay for the deal in the long run. Well, if they do not have the experience and expertise to run your business successfully, you are essentially throwing your company and prospective financial gains down the drain. There are too many stories of owners not receiving their full payments because the buyer ran the business into the ground!

Tips To Avoid Selecting The Wrong Buyer

Getting multiple offers can be tremendously exciting. However, to capitalize on the opportunities, you need a proper filtering process.

Pre-Qualification

A well-thought out pre-qualification criteria can help you access the buyers that are serious about business, save you a tremendous amount of time and effort, and streamline the process of selling your business. Selecting a qualified buyer who has the necessary experience, management skills and financial strength to buy the business is vitally important.

Experience

Experience counts when it comes to running a business! Whether you are selling to a strategic buyer like a competitor or a financial buyer who is essentially an investor, you need to make sure the reigns of your company are in experienced and secure hands. A knowledgeable and experienced management team is not enough. To secure the future of your company you need to ensure the person at the helm knows how to run this particular type of business.

Check Their Past

A background check is essential. Look for the prospective buyers who have experience running a business similar to yours. And whatever you do, stay away from the imposters! There are those who desperately want to be an entrepreneur, but lack the necessary expertise and experience. They may impress you with the relevant knowledge and may ask you all the right questions, but since they do not have the hands-on experience of running a business, they may end up wasting your time by failing to go through with the deal.

Capabilities

You may also want to look into the management capabilities of a prospective buyer. You want an owner who has the right communication skills to decipher his aims and goals with respect to the management of your company, and has the attitude to learn from and work with the experienced managerial staff to advance the company’s goals. Look at their track record. Find out how they work with their employees, clients, customers, and suppliers.

Longevity

If you are running a manufacturing business, you need to consider whether the new owner will be able to keep your products and services circulating in the market. For example, if retail is your line of business, you must answer the question: does the buyer have the market knowledge to keep the customers engaged? A skilled entrepreneur with relevant experience can be trusted to not let your years of hard work and progress go to waste.

Financial Standing

Early pre-qualification of prospective buyers is essential for a successful business sale. Giving prospective buyers some financial incentives like financing options may help you land a good deal; however, why not look for buyers who have strong financial and credit standings in the first place? A buyer who is willing to provide you a letter from their financial institution or accountant declaring they have the required funds to purchase your business can be a great plus.

In addition to declaration of available funds to invest, you may also want to know about the sources of financing, reviewing ownership, and any bankruptcies filed. It is important to know if the prospective buyer is able to close the deal. When it comes to selecting a buyer for your business, financial strength absolutely matters. Their ability to manage a business’s financials also counts. If possible, get a feel of their financial handlings. Find out their business’s financial track record. You can only trust a buyer with a considerable financial grasp to secure your company’s financial future.

How Selecting The Right Buyer Helps Your Sale

An effective filtering process does not only help you zero in on the buyers that make sense, but it can also bring you closer to making a deal. Generally, business sellers are averse to qualifying prospects early on in the process, thinking that they will end up driving the prospects away. However, the opposite is true. Pre-qualification actually moves your prospects to the next level in the sales cycle. The prospective buyers are assured of your willingness and seriousness, and are forced to prepare for the sale. They also get to know your business better and see the opportunities it offers.

An effective selection process can translate into an efficient and lucrative sales process and may bring you one step closer to your dream of retirement. Working with an advisory team that is capable of vetting the right type of buyer can spell the difference between a sale under the most reasonable timeframes, and beginning a sales process that falls apart and never materialized, as was the initial goal.

We will examine a few more deadly mistakes business owners make when selling their business in our next article in this series.

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