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Key questions business investors should ask sellers

By DealForce

key questions for business investors

Determining the true value of a business and achieving a successful sale for both parties is a complex process which requires a combination of market expertise, experience and proven methods to obtain a fair and accurate projection of a company’s worth. When a buyer uses DealForce(part of the Generational Group), they can be assured that all the key questions needed to establish the true value of a business have been asked. The answers to these questions will play a key part in achieving a successful sale.

There is a trend among the business marketplace for FSBO, For Sale By Owner. In such instances, a buyer will usually have to be prepared to take on more responsibility in the buying process to fully assess whether the business in question is the right opportunity for their portfolio. These are just a few key questions that can help you establish this:

How did the seller value their business?

When a business is FSBO, the potential buyer and seller will usually each perform their own valuation of the business, therefore in one sense the seller’s valuation of the business is of less significance than the buyer’s, however the method which they used to arrive at the figure is. The easiest valuation method for sellers is asset-based but this is also the least accurate. Buyers will often use a multiplier valuation method, and if the seller uses the same method for their valuation, then both parties will be on the same page when it comes to negotiations.

When did the owner decide to sell?

When the owner decided to sell in of more importance than why. By asking this questions a seller can decipher whether the sale was a reaction to bad news that may cause problems for the future owner or whether it was truly part of a well thought-out exit strategy that has been planned for a number of years. If the latter is the case then the seller should be able to provide a copy of the plan to show that this has always been the case, if not you may wish to ask some further questions.

How does the owner suggest increasing profitability of the business?

With any business sale, the buyer will want to have a clear vision of the opportunities for growth in sales and profits. Whilst the owner should be in the best position to provide answers to such questions, some may be hesitant to answer truthfully. However, with the right approach the buyer can create a collaborative relationship with the seller that will make the process a more pleasant experience for all parties.

Will the seller sign a non-compete clause?

An attractive business prospect will often be so due to its established customer or client base. If the owner intends to exit the business and take the clientele with them this dramatically decreases the value of the business. If the seller agrees to sign a non-compete clause then the buyer should be able to proceed with confidence. If, on the other hand, they refuse you should question the seller’s motives.

When you use the DealForce platform, buyers can be confident that all the right questions have already been asked and that the company is already appropriately positioned for sale. Every listing on DealForce comes with Generational’s comprehensive Offering Memorandum documentation which provides all the details that buyers need to proceed with confidence.

Download the DealForce App to start browsing hundreds of buyer-ready businesses.

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Karen S. Williams, CFO, BW Manufacturing
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Bil MacLeslie, CEO, ipHouse
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Michael J Polarek, President, Paragon Packaging
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Bil MacLeslie, CEO, ipHouse
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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