Business buyers often perceive their first meeting with the seller and business broker as their opportunity to interview the seller and that it is on the business owner to “sell” them on the business. While this is somewhat true, with this mindset, prospective buyers often lose the deal in their first meeting with the seller.
This is not because the seller isn’t motivated or is difficult; it is a result of the buyer asking the wrong questions, appearing uninformed about the business, or appearing ambivalent about buying the business. Business owners want to sell their business to someone enthusiastic about the business and excited about the opportunity to grow it, not someone exhibiting concerns about the viability of the business, or seemingly sure of their own abilities. Likewise, a buyer that has not carefully read the CIM (Confidential Information Memorandum), browsed through the company website, and discussed the business with the business broker before the initial seller meeting sets a very poor first impression with the seller.
Imagine yourself as the owner who has decided “Now is the time to sell my business in California”. As a business owner, you have developed relationships with long-time employees and customers, and you would like to see these people continue to thrive. The owner is seeking not only to sell the business and enter the next stage in their life, but they also want to ensure that the people they have employed over many years are secure, happy, and have growth opportunities as well. The owner is equally concerned about the outcome of this deal as you are, just from a different perspective.
In California business sales, the first meeting with the seller and business broker should be an introduction for both buyer and seller. Your objective in the first meeting is to get to know the owner, how he runs his business, and whether this person is someone you are comfortable working with through the transaction and post-closing training. Most importantly, do you trust the owner? Do they trust you?
From the seller’s perspective, if a buyer appears uncertain, lacks enthusiasm about the business, or is skeptical, they become concerned about the buyer’s likelihood of closing and if the buyer is right for the business. Sellers are very concerned about finding the “right” buyer for their business when they decide “Now is the time to sell my business”. The business owner wants to ensure the business will continue to flourish, their long-time customers will continue to receive excellent service, and the employees’ jobs will be secure. Business sellers are very concerned about the buyer’s success; They want to see you succeed.
While the financials of the business are clearly crucial to the business, we recommend sending the broker questions about details of the financials prior to, or after, the first meeting, rather than asking them during the first meeting. A business seller often doesn’t have the ability to access detailed financial information and relies upon their CFO and/or CPA for detailed financial questions. Therefore, asking these questions on the fly can disturb the conversational cadence of the first meeting. By sending questions separately, the seller can provide more thorough responses and ensure the response is accurate by consulting the correct person.
4 Topics a Buyer Should Keep in Mind for Business Owners in the First Meeting
- Introduction:
- Briefly tell the owner about your relevant business experience. Business owners care more about your relevant business experience than what business school you went to. They put a high value on hands-on experience.
- Tell the owner why you are interested in the business and why you are a good fit for the business.
- Owners are always concerned about their employees and preserving the corporate culture. They worry about the employees’ job security and work environment after the sale. They will want to hear about how you plan to handle the transition, your management style, and your plans for the staff.
- Learning about the Business:
- Start with general and open-ended questions about the business such as, “Tell me about your business and how it started.”
- Focus on operational questions about how the company runs. Learn about how the company works. Most sellers love talking about their business.
- Ask about the staff, their experience, and their roles.
- Ask whether there are members of your staff that can take on more responsibility?
- Ask what the seller’s role in the day-to-day business is.
- Ask who handles key customers and who the customers call when there is a problem.
- Marketing & Sales
- Ask about how the company acquires customers. Do they have a marketing program, buy leads, website leads, referrals, or respond to RFPs or bid requests?
- Follow up with how the sales process works. Who prepares quotes/proposals? How orders are processed, scheduled, etc. Note that many owners do the quotes and proposals themselves for small businesses.
- If the owner prepares proposals or quotes, ask what is involved in preparing these and what would be involved in learning how to do this.
- Opportunities & Growth:
- Ask the seller what they would do to grow the business if they were buying it or were younger and planning on keeping it for several years is usually a great question.
- Ask about what would be involved in geographical expansion, such as neighboring cities, counties, or states.
- Ask about expansion into synergistic services or new products.
- Note: Most sellers will acknowledge they are operating in their comfort zone. They are making enough money for the lifestyle they want and growing the business significantly would require more work than they are willing to do.
4 Questions That Will Cost You the Deal!
The questions below will likely cost you the deal before it even happens.
- If you lead off with questions about the financials and P&L, the seller will immediately be turned off:
The seller will not likely be able to answer questions about specific expense line items, add-backs, depreciation, or how the DE or EBITDA was calculated. The seller pays their bookkeeper, CFO and/or CPA to do this work and few dig into the P&L details. These questions are best left for a follow up e-mail to the business broker so that the seller can thoughtfully obtain the answers from the right resources. - Seller Note, Seller Financing questions in the first meeting:
As a professional business broker for over 20 years, I am still stunned when a buyer asks an owner about seller financing early in the first meeting. This should be discussed with the business broker separately and is generally best to present as part of an offer.
It’s easier for a seller to say yes if this is part of a good offer. When asked in a meeting face-to-face, the answer will almost certainly be “no” or “it depends” as it is highly variable based upon the other terms of the offer. - Asking the seller “How did you come up with the asking price”:
If the seller is represented by a business broker, the broker would have prepared a market value analysis and suggested the asking price to the seller. This question should be discussed privately with the business broker. - Asking if there is “flexibility” on the asking price in the first meeting:
This tells the seller you are looking for a “deal” or bargain, or don’t see the value of the company. Either way, you just significantly diminished your prospects of buying the business. Asking the seller if they will drop their price is never appropriate. This should be discussed privately with the broker and presented in an offer.
For over twenty years, the business brokers at Pacific Business Sales have assisted many California business owners from the moment they decide now is the time to sell my business all the way through closing. By utilizing the above topics and advice in your early discussions with a seller, you can ensure a more successful introduction which in turn translates to a better post-closing relationship between the buyer and seller.
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