Navigating the Selling Process: Verifying Qualifications

Your business is officially on the market for sale. Having completed a valuation, set an asking price, and are begun receiving inquiries to purchase your business, the next steps involve preparing for face-to-face meetings and negotiations, while also managing additional inquires for your business as they come in.

The Selling Process

The selling process encompasses various stages, from prioritizing prospective buyers based on their qualifications to accepting a buyer’s offer. Before negotiations and accepting an offer, sellers need to verify prospect qualifications and meet with prospective buyers to establish trust.

Verifying Qualifications and Prioritizing Prospects for Follow-Up

In your listings or initial responses to inquiries, you requested information to answer key qualifying questions about potential buyers:

• Do they possess the necessary experience, education, certifications, or licenses?
• Does their purchase timeframe match with yours?
• Are they seeking a business like yours and of similar size and price?
• Are they financially capable of meeting your businesses’ financial expectations on closing day?

Based on responses, categorize respondents into cold, warm, or hot prospects. For those who didn’t provide necessary information, decide whether to move them to the “cold-prospect” category or reach out for additional information.

Requesting Additional Information if Necessary

For respondents lacking required information, consider reaching out for clarification without revealing your identity. This step allows you to gather important details while maintaining a level of confidentiality. If needed, research independently to validate information.

If the prospect is a competitor, or a person who works for a competitor, begin by getting a mutual confidentiality agreement and, even then, request the buyer’s personal and business background information before sharing further information about your business. This will test the prospect’s level of interest. Only those serious about purchasing will be willing to reveal their own financial information.

If most inquiries seem to lack necessary experience or financial capability to buy your business, reconsider the wording in your listings. Rework your business description and call-to-action to help buyers better understand your business, price, and financial requirements and to help them self-qualify before responding.

Quickly Reaching and Beginning Discussions with Qualified Prospects

If you are not working with a broker, take the initiative:

Pick up the phone. Identify yourself if your name is not likely to reveal your business identity. Otherwise, explain that you are the owner of the business they inquired about. Convey your thanks for the inquiry and your preliminary belief in the buyer’s suitability with your offer.

Use the conversation to confirm your impression about the person’s qualifications and capabilities. Without revealing your business identity, develop rapport through a discussion that provides and obtains information in an answer-to-answer trade-off. For example, to learn more about the buyer’s cash condition, offer some financial information first. You could roughly describe your business size before explaining that the sale requires $X cash down at closing. This gives the buyer some information before requesting financial information in return.

Email your CIM—confidential information memorandum. If you believe the prospect is an able and likely buyer, share your selling memo, but only after deleting all identifying information. Do not share your full confidential information memorandum at this point.

Schedule a first meeting. To keep your business identity concealed, choose a location outside of your business; the office of your accountant or attorney is a good alternative.

If a confidentiality agreement hasn’t already been obtained, explain in advance that you will begin the meeting by presenting such an agreement, after which you will be able to share specific facts about your business.

Explain that the prospect’s accountant or attorney is welcome to attend this meeting. Simply by attending the meeting, the prospect conveys a high level of interest. Bringing legal or accounting advisors adds further demonstration of intent.

If geographic distance makes an on-site meeting improbable, set up a phone or video meeting to be attended by you, your accountant or attorney, and the prospective buyer and accompanying advisors. Prior to the meeting, exchange confidentiality agreements.

During the meeting, refer to the confidential information memorandum summary you previously provided (without business identification). Discuss your business description and overview, using the discussion to reassess buyer interest and deepen confidence in the buyer’s intent.

Restate the offering price and terms as presented in the selling memo, summarizing the purchase structure in terms of the buyer’s required cash investment at closing and the need for solid security if you are offering a seller-financed loan.

If the meeting reconfirms your assessment of the buyer’s interest and ability, be prepared to move onto the next step. Otherwise, end discussions at this point, expressing thanks for the interest while explaining that the buyer’s situation and your expectations appear not to match up.

If you have only obtained a confidentiality agreement from the prospective buyer, at this point also obtain a non-disclosure agreement (NDA). An NDA requires the buyer to keep confidential information secret. If the prospective buyer does not pledge confidentiality and non-disclosure, end discussions at this point.

Share your CIM—confidential information memorandum. With confidence in the prospect’s intent and financial ability to purchase your business, and after obtaining a signed confidentiality and non-disclosure agreement, share but don’t yet release your CIM. Give the buyer time to review it carefully but do not allow the prospect to take it from the meeting until you are very confident of the likelihood this person can and will buy your business.

When you are ready to release the confidential information memorandum, number the cover sheet and have the prospect initial every page. Should you learn that copies of pages end up in the wrong hands, you can trace their origin.

If the prospect indicates reduced interest or you have reduced confidence, probe, address, and overcome concerns – or end discussions at this point.

Tour and present your business. Schedule the visit when your business is in prime physical condition and during a time when it is active and impressive. If yours is a very small business and a tour may spark staff questions, be prepared to introduce the prospect as a colleague, associate, or friend, or consider an after-hours tour.

Describe and point out features of your business and its strengths and opportunities. Conduct the same kind of tour you would provide to industry or community VIPs, showing how a customer experiences your business before going behind the scenes to provide an overview of how your business works and produces its products or services. Do not reveal trade secrets, proprietary processes, or information that should be kept from anyone but the ultimate buyer of your business.

Encourage and answer questions, learning more about and addressing the prospect’s abilities and concerns. If you have concerns or the prospect indicates reduced interest that cannot be overcome, end discussions at this point.

Immediately following the tour, hold a private meeting to address the prospect’s questions. Be prepared to answer the questions outlined in the next section of this chapter. Take care not to reveal insider or highly confidential information. Also, do not negotiate your asking price at this point. If the prospect indicates reduced interest or concerns that cannot be overcome, end discussions at this point.

Use the post-tour meeting to learn more about the prospect. Inquire about past business ownership, desired purchase timeline, and how long their search for a business has been going on. Ask how the prospect plans to fund a purchase, and who else will be involved in the purchase decision (for instance, a spouse, partner, banker, attorney). If the answers cause you uncertainty about interest or capability, address and overcome concerns or end discussions at this point.

Provide requested information. The next formal step in the buying process is for the prospect to hand you, or your broker, a letter of intent to buy your business. To keep interest moving toward that point, provide requested information such as marketing materials, product samples, or other information that heightens interest without divulging confidential business workings. If you sense the prospect has lost interest or lacks the ability to pay the price required (which, after negotiations, may end up at 10-15 percent below your asking price), address and overcome issues or end discussions.

Navigating the selling process demands diligence and strategic communication. As you progress, adapt your approach based on prospect responses. Remember, the goal is to identify and engage with serious, qualified buyers while protecting the confidentiality of your business information. Stay proactive, address concerns promptly, and maintain a flexible mindset to finalize the deal and ensure a successful transition for both you and the future owner.