Practical articles to help small business owners when selling and buying small businesses.

Someone just called and they want to buy my business. How do I handle a call like this?

Michael Kerr - Wednesday, August 14, 2019

Someone just called, they want to buy my business – this could be exciting!

Rather than waiting for the perfect business to be advertised - which rarely happens - frustrated business buyers are starting to contact owners directly to find out if they are interested in selling. 

This is especially the case where you run a professional services, technical, IT or scientific business. In big part it's because buyers of these types of businesses know what they want. They also know that they won't find them on the major business for sale websites where about two thirds of all businesses advertised are food, retail, franchise and personal services businesses.

If you do get a call from a potential buyer it's only natural to start to wonder about all the possibilities;

  • That extended overseas trip – that’s exciting!

  • The new holiday house – that’s exciting!

  • 5 days a week on your favourite pastime or hobby – that exciting!

But before you rush off and make an offer on the dream holiday shack or book as extended trip you need to take a big deep breath. 

Even if the buyer sounds credible and you are really, really keen to sell (but just haven’t got around to doing anything about selling) there are some steps you need to take to make sure you don’t;

  1. Immediately allow the potential buyer to have the upper hand in the discussions and negotiations, and/or

  2. Make a bad decision by reacting or getting rushed.

Here is an overview of the x main steps to help you effectively handle a surprise call from a potential buyer and work out if this is a genuine opportunity to sell your business on terms that are acceptable to you. 

What not to say to a potential buyer.

Firstly, let's highlight examples of some clangers that will immediately put you on the back foot and the potential buyer in the driving seat. 

In the early stages never say things like the following, even if they are true. There is a time and place to introduce issues, potentially like these, at a later time and when you know more about the potential buyer.

  1. I’ve been thinking about selling, but just haven’t got around to doing anything about it, 

  2. I’m really over this business and am so glad you called,

  3. I’ve just had a health issue, or a break-up with my business partner, and am not sure if I can continue to effectively run the business! 

With the clangers avoided you can now focus on going through the steps needed to determine if you can sell your business to the potential buyer on terms acceptable to you. 

Going through these steps will take time and effort but that's the investment you need to make if you wan to sell your business. 

Assuming this is the case your first objective is simple. 

Let the potential buyer know you are open to an offer.

If you want the potential buyer to continue with the discussions they need to know that you are open to an offer but that you have;   

  1. Made (or are in the process of making) plans for an orderly sale. This signals to the potential buyer that it's not all one-way traffc, and a
  2. A clear idea of acceptable basic deal terms e.g. business value, timing etc. Regardless of why the potential buyer might say they need the information you are under no obligation and shouldn't feel pressured to disclose any key deal terms in the first few conversations. The objective is to just to confirm it's a business of interest to the potential buyer i.e. it's the right industry, location and time.
I know some of you will be thinking 'but I actually don’t have a clue about either'. That's normal and perfectly ok. 

If you handle this first call well you will buy yourself time to;

  • Do a little research on the potential buyer to check their bona fides, and
  • Consult your trusted adviser(s) or other colleagues to get the right advice ,and 
  • Develop a plan for the next steps.

Even when they run smoothly it’s not uncommon for a sale process, even where a buyer approaches you, to take 6 - 18 months, so you do have time to get it right. 

The main objective in these very early stages is to ensure the buyer doesn’t assume you are an easy target.  

If you get through this first call or two and decide you want the discussions to continue there are a few really important rules or principles that you need to follow; 

The rules of engagement for dealing with a potential buyer.

1. Know your buyer.

Never have or continue discussions with a potential buyer unless you know exactly who they are and how to contact them. If they are reluctant to give you their name, number and email forget it.

2. Don't just rely on a confidentiality agreement when sharing confidential information. 

Don’t share any information about your business just because the potential buyer agrees to sign a confidentiality agreement.

If you do decide to share confidential information definitely get a signed confidentiality agreement. But also make make sure you understand the potential buyers suitability, capability and motivations by asking questions like;
  1. Why exactly they are interested in your business?
  2. What is their current business or job? Do they have any experience in your industry?
  3. What activities do they propose to undertake to assess your business?
  4. What their process and timeline is for getting from a signed confidentiality agreement to, assuming it all goes really well, an offer for your business? 
There is a lot of work to be done between the first call and an offer for your business. 

Both buyers and sellers tend to underestimate what needs to be done and/or poorly manage the process. Sadly this often leads to one of the parties changing their mind. As a result business sales, that actually make commercial sense for both parties, often fall over.

3. The advantages of using a Heads of Agreement (or Letter of Intent).

An effective way to manage the process of moving from that first call to getting an offer is to use a Heads of Agreement ('Heads') or a Letter of Intent ('LOI').

It might sound 'over the top' but a well written Heads or LOI is a powerful, structured way to scope out what each party can expect and by when. It’s a bit like a project plan with mutually agreed objectives and obligations that keeps the entire process, which is both taxing and emotional, on track.

While it doesn’t guarantee an offer will be made it will at least spell out clearly what all the steps are to get there. 

They are as useful for small businesses as they are for big corporates.

If you are in any doubt think of it this way. 

If you can’t negotiate a reasonable Heads or LOI with a supposedly ‘genuinely interested’ buyer then what are your prospects for negotiating a deal and a much more complex business sale agreement? 

Four questions to help work out if the potential buyer who just called you 'out of the blue' is legitimate?

To help you work out if the buyer is ‘genuinely interested’ don't be afraid to ask them questions like; 

  1. What do you know about my business?
  2. How did you find out about my business? 
  3. Have they ever bought another business?
  4. Do you have the funds available to buy my business or do you have to borrow?

These are fair questions to ask, especially when the other party has made the first approach. 

By asking these questions genuine buyers will realise you are not ‘easy pickings’ and that they are dealing with an organised, well-prepared seller. 

In many cases this will be appreciated as both parties can more quickly and efficiently work out if this is a deal of mutual advantage.

If not it will quickly expose the non-genuine buyers i.e.'tyre-kickers' who typically won't engage in a two-way process and instead give very little while asking for a lot.

If you follow this process all the way with a genuine buyer, then you stand a much better chance of doing a deal on your terms. 

The chances of you getting a potentially pleasant and unexpected call from a potential buyer is increasing all the time. 

There are a lot of bigger businesses operating in industries under revenue and profit pressure. More of them are thinking about buying other businesses as an effective way to quickly improve their own financial performance. 

Another growing segment of new buyers will come from employees facing uncertainty, redundancy or underemployment. 

After figuring out how hard it is to find the ‘right business’ out of the thousands listed on the big for business for sale websites many of these potential buyers will start to ring business owners direct.

So be ready when they call. And reach out if I can help.

Cheers, Michael

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