Business buyers often perceive that their first meeting with the business owner (seller) and business broker is their opportunity to interview the seller, and it’s on the business owner to “sell” them on the business. While this is somewhat true, as a 20+ year business broker, I have often seen prospective buyers lose the deal in their first meeting with the seller. This isn’t because the seller isn’t motivated or is difficult, it is a result of the buyer asking the wrong questions 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 abilities.
Imagine yourself as the owner preparing to sell the business you built over 20 or 30 years, with long-time employees and customers you care about. The owner is equally concerned about the outcome of this deal as you are, just from a different perspective. This decision is equally big for them.
The first meeting with the seller and business broker should be low-key and 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? You’ll have time to dig into the details in subsequent meetings and Due Diligence.
From the business owner’s (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. Business owners are very concerned about finding the “right” buyer for their business. They want to ensure the business will continue to thrive, their long-time customers will continue to receive excellent service, and the employees’ jobs will be secure. And surprisingly, business sellers are very concerned about the buyer’s success. They want to see you succeed.
Questions a Buyer Should Ask a Business Owner (Seller) in the first meeting
Here’s a list of questions to ask a seller about their business to learn more about their business and sell them on you in the process.
- 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 owners love talking about their business.
- Tell me about your staff, their experience, and their roles.
- Follow up… are there 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 sales works (who does it), who prepares quotes/proposals, and how orders are processed, scheduled, etc. (note that many owners do the quotes and proposals themselves)
- 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:
- 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. Most have been doing this for 20+ years.
- Asking 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.
- Competitors & Market Size:
- It’s OK to ask about competitors, but few owners know much about their competitors, and many honestly believe they don’t have any. It’s not something they pay a lot of attention to. You will likely have to research this yourself.
- Few, if any small to mid-size business owners will have any idea of the market size for their business. Again, it’s not something they pay attention to.
5 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 won’t likely be able to answer questions about specific expense line items, add-backs, depreciation, or how the DE or EBITDA was calculated. They pay their bookkeeper and CPA to do this work and few dig into the P&L details. These questions are best left for much later in the process and it is best to ask the business broker to obtain these answers. Note that most business brokers don’t like it when buyers effectively start a pre-due diligence Q&A early on in the process and it’s a red flag to them if these questions come up early on. - 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. - 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 don’t see the value in the company. Either way, you just killed 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 or LOI. Again, it’s very easy for a seller to say no to a question like that and once said, it’s impossible to retract. - Metrics & and Grinding Numbers Before Due Diligence:
- Few small & mid-size business owners have extensive metrics for their business or the data to construct detailed metrics. It is generally pointless to ask for metrics beyond very basic information available in QuickBooks or other operations software the company uses.
- A small or mid-size business owner will not have perfect P&Ls, and there are often inconsistencies in where items are expensed. Grinding through minor discrepancies early on, or even in Due Diligence can be a waste of time for everyone involved, and frustrate the seller. A key concept to understand is that of “materiality” or significance. If there is a question about a $5,000 expense, with respect to where it should have been expensed, it is pointless to dig into this. It will not change the DE or EBITDA. If there is a question about whether the $5,000 expense should be $3,500 or $7,500, this is simply not a material difference even in a very small transaction. Verifying the DE and EBITDA of the business should be done during Due Diligence.
- General questions about financial trends are OK in the introductory meeting. Digging into details about the P&L should be left for the next meeting and verifying the financials is done during Due Diligence.
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