You’ve decided to buy a business but how do you know that the business you’ve chosen is the right one for you? Here are 7 questions every buyer should ask when they’re looking to buy a business.

1. Are The Numbers Provable?

One of the more frequent comments we get from buyers is that there are too many businesses where the seller cannot prove the numbers. So the strategy here is simple – if the seller cannot prove it, buyers will not pay for it, so only represent what can be documented. Additionally, if the seller has unreported income, do not expect to get paid for it. The benefit has already been realized.

The ability to provide buyers with detailed documentation to validate the financials is vital to a successful transaction. If the books and records are in disarray the seller should take time to organize them before taking the business to market.

2. Can It Be Financed?

Cash sales are rare. Serious buyers, however, do understand they have to put down a substantial down payment, but buyers want to utilize some financial leverage. There are three primary options for financing:

• Traditional lenders
• SBA loan program
• Seller financing

Traditional lenders rarely provide funds for acquisitions unless the loans are fully collateralized.

SBA type programs are growing in popularity. VR Huntington Business Group has established relationships with several SBA lenders and will pre-qualify the Seller’s business to determine the amount a qualified buyer may borrow. This greatly enhances the marketability of a business.

Seller financing is quite common and is addressed extensively amongst the various articles that have been posted on this site. Please read these articles as they offer valuable insight to this ever more popular means of securing financing.

3. What Does The Future Hold?


A business will almost always be sold that is valued upon past financial results, but the decision to buy will be based upon the future potential of the business. While some buyers consider growth to be their main criteria, at the very least the majority of buyers want to know that history will repeat itself. In other words, is the business sustainable and are there any issues that could impact it negatively after they buy. A realistic picture to the buyer should be presented, but at the same time the seller will want to present the business in a compelling fashion that demonstrates that all the parts are in place for them to takeover and continue to be successful.

4. Will Employees Remain?


This is especially important in businesses that may have some key employees. The buyer will more than likely want to meet them prior to closing. The seller should consider structuring the milestones of the deal to allow for the meeting.

5. If The Business Relies on Location Will the Lease Be Assigned?


Landlords can sometimes derail the sale. Consider meeting with the landlord to determine what issues will have to be addressed. A SBA loan will require that the business have a home for the term of the loan. Therefore, renewal options should be in place. To ensure that this doesn’t kill the sale, buyers should find out if their business broker is licensed to handle real estate transaction. For example, VR Huntington Business Group requires all staff members to have a real estate license to handle just such issues. In addition, we also have a Real Estate broker on staff to assist with the complexities of leases and landlords. If the seller owns the real estate and wishes to include it in the sale of the business then we will likewise guide you through this process.

6. Are there Any Hidden Problems?


The best strategy is to be upfront with prospects about any potential issues so that they can be dealt with early in order to maintain credibility and trust. When the seller wants to sell and the buyer wants to buy and the parties trust each other, it is almost impossible to prevent a successful transaction.

7. Is The Business Right For Me?


Ultimately, this is the question that is the make or break question. The buyer must make this decision, but the seller and his advisors should be of some assistance. VR Huntington will soon be releasing a proprietary program designed to answer this question. This program is in the beta stage now, but is called “Business Match Indicator”. The Business Match Indicator helps the buyer and seller to better understand the ideal profile and skill set of the perfect buyer for the business. This process helps the business intermediary conduct the pre-qualification screening of prospective purchasers.

Mike Derrick is a Senior Business Intermediary with VR 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.

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.

Finding the right buyer for your business is a critical step in selling your business – probably the most important.

The Vetting Process: Worth Its Weight in Gold

A good business broker (or intermediary) will vet-out the buyer in such a way that guarantees that you are dealing with a reputable individual or group that is purchasing your business.

Most buyers that have the type of money that we are talking about to purchase your business didn’t get that money by being an idiot. If they did, a quick Google search and a few reference calls will show this sooner than they can admit, “I’m not really qualified.”

Your broker will not just consider the financial equation (although that’s vitally important) but will also look at experience, reliability and the right “fit” for your company. For instance, does the buyer have relevant experience that will relate to your business? Maybe, maybe not; prior experience doesn’t always have to align perfectly.

Experience: (Also) Worth Its Weight in Gold

Case in point: the buyer that I sold my business to was a suitcase salesman. Yes, that’s right; he sold suitcases to department stores. You may say, “How does that guy have the right experience to sell janitorial services to multifamily housing complexes?”

Well, let’s stop seeing suitcases as apples and janitorial services as oranges and put like experience with like experience instead. After all, this wasn’t just any suitcase salesman. It just so happened, he was a top salesman of a very high-price, high-quality kind of luggage. Well, it just so happens our business was known for its “high-quality” image in the janitorial business. Now, instead of apples and oranges, suddenly you’ve got like with like.

He was also as experienced in dealing with executives over many location department stores as he was used to dealing with the local saleslady that couldn’t care less about what luggage to use; she just wanted to make sure that customers didn’t come storming back in to complain when the luggage was destroyed at the airport. Well, as you can see, his past experiences in luggage sales also made him perfect for the janitorial business.

My business needed someone with sales experience. I had a manager that was awesome at running operations, but he was terrible at getting new business. As it turned out, this new buyer couldn’t just go to individual apartment complexes and sell our high-priced janitorial services, but he could meet with the management companies that managed 30 and 40 complexes to convince them to let us into all the complexes.

Now, this was not that difficult for a good salesman. But the hard part was convincing the local manager that we were worth the extra cost and we would take care of their needs without their new tenants coming back to complain. Suitcases or janitorial services, soap or CDs, Mustangs or Maseratis, a good salesman isn’t good because of what he sells; he’s good because of how he sells.

Turns out, this buyer was perfect!

The Right Buyer Can Put Your Mind at Ease

Now that I sell businesses for a living, it amazes me how many perfect buyers we find for folks just like you every single week. Now, keep in mind, this is not a sales pitch – just an explanation of the benefits of working with a quality brokerage firm that wants the best for both the buyer and the seller. And trust me, putting two wrongs together in a deal never makes a right.

Another case in point: I was in a manufacturing plant the other day taking a tour with the seller and a prospective buyer. As we were walking around the production floor during a certain point in the tour, I pointed at an item that the business manufactured and asked the dumb question: “What is that?”

The seller picked it up and began to look at it slowly and then said, “I’m not really sure.” To that the buyer chuckled and said, “That’s a high-pressure water valve that is used in blah, blah, blah application…”

Believe me, it didn’t end with “blah, blah, blah” either. In fact, he told me more than I ever cared to know about that particular valve! The point is that, in this case, the buyer knew more than the seller about something that the seller’s business actually produced.

Now, how well do YOU think this buyer will do in the business?

Scot Cockroft is the owner and president of Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com). To learn more about Seller Financing and Finding the Right Buyer for Your Business, read Part 1: How Do I Know If A Business Purchaser Has The Experience to Run “My” Business

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.

I hear it said over and over, IF I am going to finance the sale of my business “How Do I Know if They Have the Experience to Run the Business?” This particular reason for not seller financing your business can be asked in a number of different ways but the message is virtually the same: how can I be sure I’ve found the right buyer for the right company at the right time?

One resounding way in which I hear this same complaint translated sounds a lot like, “I don’t know what ‘that’ guy is going to do to my company after the sale.” Well, again, this concern can certainly be mitigated by paying closer attention to how exactly you find the right buyer.

If you’re not being very discriminating during your screening process then, yes, I can agree with this statement (to a certain extent) – particularly if you are selling the company to “Joe Bob,” You know….Joe, the customer or employee who keeps making comments pertaining to the fact that he wishes he could own “a company like yours” one day.

But with an investment like this, you wouldn’t dare be so indiscriminate with your buyers, now would you?

Getting Paid Is More Important Than Selling Price

There are ways to make sure you find the right buyer for the right company at the right time. And the way we overcome this issue every time is by doing a good job when it comes to due diligence by scouting out the right buyer for your company “The RIGHT Company”. Candidly speaking, even if we are being mercenary, you are looking for much more than just the buyer that is the highest bidder for your business!

There is much more to selling a business than the total price; anyone can offer big numbers in an offer to purchase and, perhaps, even back them up (for a little while). The real brass ring for anyone seller financing their business is, of course, actually GETTING PAID! Not just getting paid today but tomorrow and through the term of the loan.

It doesn’t matter if you get $10 million for your $2 million business or $100 million for your $20 million company. If you will never get paid a dime of that money, what difference does the selling price make? (Well, besides the bragging rights while playing golf with your buddies or having coffee with friends, that is.)

At the end of the day, it’s all about getting paid. Therefore, you need to make sure that you are using a reputable intermediary or business brokerage professional to ensure that you have not only a qualified buyer but one who is committed to paying you throughout the term of the commitment.

You’ll need an intermediary or business brokerage firm, for instance, that is not just out for the one-time commission but is particular about the buyer that they attract and has a history of doing so successfully for his or her clientele – one that is discriminating about who they even talk to about your business.

Customer Relations Don’t End Once the Business Is Sold

Screening through a professional business brokerage firm or intermediary is essential to finding the right buyer at the right time for the right company and, what’s more, finding the right buyer, who will not only pay their bills but also succeed in running your company successfully (so they can continue to pay their bills).

It’s a little like being a millionaire matchmaker: you can’t just go out and find your client the prettiest, tallest, blondest girlfriend (even if that’s what he “thinks” he wants at the moment).

No, you’ve got to consider dozens of other variables, like how they’ll get along, what her interests are that he shares, how they’ll mature together, what they’ll talk about and will she love him…for him? Or just his money? You even want to screen her to see if she’ll treat the help well because, let’s face it, that’s an indication of how she’ll treat her husband (someday).

The same is true of finding you the right buyer for your company. You may think this is bad, but I have actually told buyers that they can’t even look at the business because they were rude to my staff. WHY? Because these are the types of buyers that will be rude to your employees and clients as well; these are the types of buyers that will burn bridges and bury your business.

You know the employee that is going to give you inside information? Well, it’s kind of hard to find out this information when that employee has stormed out because of this RUDE new BOSS who wasn’t screened properly by your professional intermediary. BUT you must make sure that the buyer is not a jerk…or an idiot.

I say this casually, of course, but it is no casual matter. If you want to get paid, you need to make sure that you’ve done your due diligence in finding the right buyer.

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.