Questions to Ask the Broker and/or Seller of a Business

1. What is the process of buying a business?
2. How long will it take?
3. Why is the seller selling this business?
4. How much is the business really making?
5. Who are the key employees in the business?
6. How long has the business been in existence?
7. How long has the seller owned the business?
8. Does the business have any clients / customers that represent more than 10% of the sales of the business?
9. How do they get paid? Cash, terms, maybe?
10. What is the business’s position in the market, vs competitors?
11. Anything truly unique about the business? Patents, trademarks, exclusive representations, contracts, lack of competitors?
12. Does the business require special licensing such as a contractor license?
13. If so, can you qualify for the license or will the seller allow you to use his license?
14. Does a buyer need special skills or knowledge to run the business?
15. Does the business own its own premises or are they leased? Terms of lease, renewal options, transferable, location, access?
16. How is the business priced?
17. Will the owner carry back a note?
18. Can it be financed via SBA?

Selling and Leaving

We often get the question, “Can I sell my business and leave the next day for vacation?

The answer is of course “Not the next day, but it could be soon afterwards”.

All buyers expect some sort of transition or training period with the former owners. They need to meet the key customers, suppliers, etc., and get a chance to know the employees. Of course the transition period is a matter subject to negotiation. Generally anywhere from a couple of weeks to a couple of months will be required and will vary with the industry knowledge and experience level of the buyer. The seller’s job is to help the buyer shorten the learning curve so that he can run the business as soon as possible.

Often in larger transactions, the buyers want the seller to stay for an extended period of time, sometimes a year or two. These transactions generally involve a management contract of some sort and will involve compensation for the seller. Some owners view selling as a chance to allow the business to achieve a new level of growth and capital expansion and they would like to continue being a part of the story. A smaller piece of the pie, but a much bigger pie is their goal.

There are usually motivations on the part of the seller which argue for an early departure. A seller may be just plain tired of the business – burned out – and need and want a change of scenery. There may be an illness requiring or encouraging the sale. Perhaps retirement is urging them on, or advancing age, and all of those things still to be done. Most small to medium business buyers will understand these desires and actually want the seller to leave sooner rather than later so they can start doing their own thing.

A desire for early departure by the seller may also be a red flag for a buyer. Questions could arise about why such a hurry? Is there something about to go wrong that he’s not telling us?

So if you are selling, try to understand the buyer’s issues and be a little flexible in your departure plans.

Why do owners sell their businesses?

• They are “burned out” – the most common reason, often in as little as 5 years.
• Health problems.
• Retirement
• Expiration of lease.
• Children not interested in taking over.
• Divorce.
• Under capitalized.
• Changing technology requiring new capital inputs.
• Financial difficulties.
• Employee problems.
• Customer or supplier problems.
• Estate planning.