At Rocky Mountain Business Advisors (RMBA), we have an 8-Step process that we live and breathe by when facilitating the sale of our clients’ businesses. This process enables focus and precision to how we work with closely-held business owners who are ready to begin the process of selling a business, and keeps the end-goal firmly in mind: selling a business for the best price possible.
In my article last month, I covered the first three steps of that process: Goals Discussion, Price Determination and the creation of a Confidential Executive Summary. This month, we will focus on Step 4: Go to Market & Buyer Qualification. Specifically, we will take a deep dive into the Buyer Qualification process.
A wonderful friend of mine, and seasoned broker, the late Michael Fekkes, helped define key aspects of effective and efficient Buyer Qualification, a vetting process that we utilize in every sale. Here, I’ve condensed some of his key points on the topic to provide you with an idea of the complexities involved in how we understand whether a buyer is qualified to purchase your company.
- The NDA
Once the Confidential Executive Summary (including up-to-date financials) is completed (Step 3), we are ready to Go to Market. As we receive inquiries from prospective buyers each is sent a Non-Disclosure Agreement (NDA) which must be executed before we commence any conversations.The initial conversation begins with a review of the buyer’s requirements, experience, education, and financial capabilities. If during this initial conversation, we do not believe that the buyer is a fit for the business we explain why and thank them for their time. If we determine that they are a qualified buyer we then begin a conversation discussing the business and subsequently provide them with the Executive Summary for their, and only their, review.
- Buyer Qualification
Once the prospective buyer has reviewed the Executive Summary and determined that their level of interest warrants further discussion, we will schedule an initial call with the seller. In advance of this call the buyer will have also provided us with a summary of their background, qualifications, understanding of the industry, and their financial strength. If we do not feel that they meet our criteria for a successful transaction, we will not move forward with the call.At this stage the buyer should already have completed substantial individual research or have first-hand knowledge on the industry. For those without direct industry experience, there are trade magazines for just about any business sector and a wealth of data available online. Keep in mind that potential buyers at this point will have begun to synthesize their research and industry knowledge with attractive aspects of your business, like revenue growth, a stable customer base, a strong and effective staff, established policy & procedures, and increasing profits.If you worry at this stage that certain aspects of your business may be lacking from a buyer’s perspective, take heart. Buyers with deep industry knowledge may be well-positioned to improve those issues and might just consider them opportunities for growth rather than deficiencies.
- Clarity & Transparency
Once we have sufficiently informed your interested buyer of all aspects of your business (which usually takes a number of informational meetings), they should have a strong understanding of your business, know whether their basic criteria has been met, and have clarity on the business valuation, financials and operations. We will also have determined how the buyer intends to finance the transaction, as well as identified potential obstacles which may slow or derail getting to the closing table. At this point it is also critical to understand the chemistry between buyer and seller. If the seller does not believe that the buyer is a good fit for the business, rarely will we move to the next step. It is important to remember that while the financial outcome of a sale is of critical importance, sellers who have built a business over the course of decade place a very strong premium on legacy – that is, who will carry on the business, care for employees and not degrade the reputation the seller has developed over many years. If the seller is comfortable with the buyer subsequent to these early informational meetings, then we bring both parties together to dig deeper into the business, its operations, growth opportunities, etc.
- Site Visit
It is certainly important at this stage in selling a business that any potential buyer tours your business facility for a more complete understanding of your site and operations. Only serious contenders will be involved at this point and naturally, these visits will be after hours to maintain complete confidentiality. We never involve employees in these meetings unless they are aware both that the business is being marketed and that they will likely play an important role under new ownership.At this point, a potential buyer is able to see the operation for him/herself, ask deeper questions related to the business operations, raise and discuss areas of concern and, more importantly, begin to visualize themselves operating the business.
Our Buyer Qualification process is comprehensive, confidential, thorough, and essential in vetting potential buyers for our clients’ business. This ensures that we bring only the most qualified buyers to the table.
Our next article will cover Step 5 in our 8-Step Selling Process – and it is a big one. Get ready to learn more about the negotiations involved in Selling a Business.
Please note: Our office is in Denver, and if you’re looking to buy or sell a business in Colorado, New Mexico, or Wyoming, we’d love to represent you!