As I noted in last week’s blog, the first meeting with a qualified potential buyer is a great sign that your company is an attractive candidate. If the personalities are a good fit and the price and terms are right, you can go from that meeting to having a real deal brewing.
After the buyer(s) and the seller(s) share pleasantries and probably some personal information about mutual interests, families, and possible connections, the topic will turn to the business at hand. This list of questions will usually come up as you spend time together. Most business owners have the answers to these questions readily at hand but like to know what to expect beforehand. Therefore, here are the
Typical Questions from a Prospective Buyer for an Initial Visit
During the visit, the prospective buyer will usually ask some or all of these questions:
- Please provide a brief history of the business including when and how started, how it’s evolved over time, and recent trends. (Get ready, you’ll be asked to repeat this at least eight times before your business is sold)
- What are the roles of the owners? If any of them are not involved in the business, please tell us why.
- Please describe the roles of any family members involved in the business who are not owners.
- What was the impact of COVID-19 on the business?
- Did you receive a PPP loan? Any other benefits ERTC, etc.
- Describe each major line of business and the gross profit margin for each (target, actual).
- What is the target overall Gross Profit Margin? Net income?
- Please give us an overview (high level) of the services offered.
- Describe the customers for each major line of business. How long is the relationship for a typical customer? What is your retention rate? Do clients buy multiple services? Who is your ideal customer?
- Are there any customers that represent more than 5% of the net income?
- Please provide details of any related party transactions. Rent, equipment, other corporations.
- How is overhead allocated among the related parties, if applicable?
- What is the current organizational structure? How has it evolved? Is it working well now? What changes would you make to improve the company?
- How do you handle HR, recruiting, compensation, bonus Issues, benefits, training, compliance, etc.?
- How are staffing levels? Open positions? Are certain positions hard to fill?
- Are there any key positions open? For how long?
- How fast do you close the books in a typical month? What is the general process?
- How many subcontractors do you use? Length of time, for what, pricing, etc.
- What is the company’s MOD rate? If it is high, why?
- What software do you use? Enterprise-wide business system? Accounting? Design? Fleet management/tracking/etc.
- General description of your fleet and equipment.
- Any there any supply agreements with vendors?
- Any current or potential litigation? Please describe.
- Any history of fraud or other similar issues within the company?
- In general, what is the company’s fixed asset policy?
- Are there any commitments or contingent liabilities that aren’t on your balance sheet?
- Any history of negative environmental reviews?
- What are the opportunities for growth for this company? What would the owner do to reach another level of revenue and profits if he/she were staying for the next 5 years?
If you’ve prepared these answers beforehand, you will be ready to discuss them intelligently, even if you are not the “hands-on” owner anymore.
What are the next steps after the initial Buyer Meeting? Unless the parties for some reason don’t like/trust each other, the next step is usually a deeper dive into the numbers and clarification of facts that the buyer might require before getting buy-in from their investors/board/partners. After that, you should expect to receive a non-binding offer with a price, terms, a description of how the transaction will be structured, noncompete, and any other prerequisites to be covered or checked off before closing.
Your advisor will receive the offer and you will review and probably determine what the ideal deal would be for you and authorize your advisor to negotiate on your behalf. When you are satisfied you’ve achieved the closest offer from an appealing buyer that meets your desired price and terms, you will revise the LOI, sign it and move to due diligence.
Are you ready to begin the process of selling your business? Have you tried it once before and not reached your goal? If you’d like to discuss your experience and what you might find considering today’s market and your business as it has evolved, let’s talk! We help landscape business owners with their exit plans from where to start, internal buyers, external buyers, and combinations of those!
You can reach me at [email protected] or 224-688-8838.
We’re here to help you Harvest Your Potential!