As I mentioned in previous post, there is more to selling a business than the sale price. Buyers can offer big numbers when they’re looking to buy a business BUT can they pay that price. Here’s how to make sure they can.

Put Like With Like

Look at your business and ask yourself, “What role do you fulfill?” Yes, I already know what your answer will be: “Everything!” But if YOU do everything then you have nothing to sell; you’d simply be irreplaceable, and not in a good way. What is the role, realistically speaking, that you fulfill in the business? Sales and marketing? Production? Logistics? Bookkeeping?

Specifically, what do you do that makes the company uniquely yours? Your job and that of the business broker/intermediary is to hire someone that can do this job not just as well as you did it but actually better than you.

This is not rocket science, but rather this is something that can be done very effectively 99% of the time. And guess what? You have help from the business brokerage firm, and you have a say as to who the buyer is; none of this process happens without your active participation.

How many investments can you say that about? I mean, it’s not like as a shareholder of Coca-Cola or Yahoo! you have a say about who the new CEO is of that publically traded company where you invested your retirement funds. Here you play an active role in planning for your retirement by screening the buyer applicants for your company. After all, the better screened the buyer; the more likely he or she will be to run your company successfully in your absence.

Resumes, References and Credit History

That is why it is important when you are qualifying the buyer that you ask for resumes, references and credit history. You need to make sure that you can understand what type of buyer I would suggest you lend money to.

Huntington Business Group Inc. in Dallas, the business brokerage firm that I own and operate, takes this point very seriously. In qualifying the buyer, you should have a resume in front of you to consult. This resume should include the work and experience that relates directly to the business that you own.

As I said in a previous post, when I sold my janitorial business, the buyer didn’t have janitorial experience but had extensive and relatable sales experience that, reading between the lines, I could see would apply directly to my company.

While considering the buyer, it is equally important for you to examine your business strengths, your weaknesses and the role you play. Once you leave the company, the business must be strong in operation (even without you) because of the employees that you have in place.

Obviously, the buyer doesn’t need to be strong in this area; the employees you entrust with your company should do their jobs and do them well, regardless of who signs their paychecks. The buyer should be strong in the areas that you fulfill, or the business needs to be able to grow and be more successful. In fact, what you are looking for in the buyer is someone that can take your business to the next level.

This is how you are going to get paid.

Forget what the business is currently doing; if the buyer is the right match, then two years from now, the company will be much larger and have much greater capacity to pay you the money you are owed and the interest that is mounting.

Another area when qualifying the buyer is credit history. If the buyer has relatable experiences, then you would look to their creditworthiness. Now, as a business transition specialist, I must say here that rarely do I see a buyer with bad credit. So what I really want you to focus on is not just the credit score. Take a look at credit history, and in particular look for what type of credit they have had previously and, if any, what type of problems you can see in their credit history.

Again, you are not alone in this process; it doesn’t have to be so hard. In my business, this is an area that we help you with. We will sit down with you as a “Credit Committee” to analyze the creditworthiness of an individual to buy your business. I bring this up because I have seen a buyer with a credit score of 700; but they had a red flag buried somewhere in there, a repossession of a car.

Now, as a broker where the seller has put his trust in me to sell his business to the right buyer, this is concerning to me. I want a complete explanation of what happened and how the issue was handled. If the buyer is the type that would allow their vehicle to be repossessed, then they may be the type of buyer that would walk away from your business when the times get tough.

In this particular situation, the buyer had a lemon car and was able to show the documentation of this and, upon request, a letter from the lender where they were correcting the issue on their credit report (even though it had not been done at the time we were reviewing). In the end, the buyer ended up being more than qualified to purchase the company and paid the seller note in full, giving the story a happy ending.

Without a quality brokerage firm in place checking on these things, the seller might have missed the repossession in the first place or seen it, misunderstood it and turned the buyer – and a good prospect – down out of a kneejerk reaction. Neither course is advisable.

Parting Words About the Buyer’s Experience to Run Your Business

At the end of the day, this process is all about getting paid. Finding a qualified buyer, making sure he or she is best suited to run your company and vetting the prospect through a series of verifiable processes just makes sense to ensure your investment – now and in the future.

Of equal importance is finding a buyer who is experienced enough to run your business in your absence, regardless of what line of work they succeeded in previously. Be it suitcase sales or the restaurant business, retail or manufacturing, if you find the buyer’s experience suitable for your company, you’ve found a qualified buyer indeed.

Scot Cockroft is the owner and president of Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.