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The Questions Buyers Ask and Why You Need to Prepare for Them

By Generational Equity

Questions

In our never-ending quest to help business owners understand how investors and business buyers think, we give you a list of common questions that often come up in initial “meet and greet” buyer meetings. Naturally, this list becomes much longer and more detailed once due diligence is opened. However, you need to be prepared to answer these even in preliminary meetings with buyers.

Our dealmakers with the Generational Group of companies suggest that you practice your answers because the more prepared you present yourself, the better impression buyer(s) will have of your business. As the old saying goes, you never get a second chance to make a first impression.

Our good friends at Axial, an online database providing insights to both buyers and sellers, suggest that opening rounds of meetings will cover questions from buyers on these key areas:

  • Business Operations
  • Business Risks
  • Your Motivations
  • The Transaction Process

Before we dive into this in more detail, one key caveat: if you are NOT using the services of an experienced investment bank like Generational Group (we were recognized as the Investment Banking Firm of the Year in 2016), you will need to have any buyer sign a rock solid Non-Disclosure Agreement (NDA) before you delve into these questions. Furthermore, ensure your NDA is reviewed by an M&A attorney before they sign it. You will be disclosing lots of key trade secrets, so do what you need to protect yourself.

Caveat No. 2: don’t enter discussions with any potential buyer that you have confidentiality concerns with. You know who these folks are. Every industry has them. The rumors about their lack of integrity and professionalism abound. Avoid these folks at all cost. You will have plenty of opportunities with other buyers. Never enter conversations with a group if you are doubtful of their integrity.

Having said all of that, even though all four of the categories above are vital to prepare in advance for, the two segments that are arguably most important are the business risks associated with your company and the questions pertaining to your personal motivations. To delve into these, buyers will ask you specific questions such as:

  • What has been your biggest misstep as a company?
  • What economic/macro trends have worked against you in the past?
  • What are your competitors doing better than you?
  • Is there any seasonality or predictable variability in demand for your product/goods/services?
  • Are there any pending litigation, Medicare claims, lawsuits, etc.? What are the details if any?

You may look at this list of queries and quite justifiably ask, “Why would I disclose any of these to a buyer, especially in an early meeting?” The answer is simple: they will come to light eventually and when they do, if you haven’t discussed them – or worse yet have tried to cover them up – they will impact your relationship with the buyers, who will then ask themselves, “What else hasn’t this seller disclosed?”

So, enter your preliminary Q&A palms up, with total honesty in your answers. If you have made mistakes, tell them what they are but more importantly what you have done to address them. If your competitors are better than you in some areas, be honest and tell the buyers about them but, again, explain what you are doing to overcome these deficiencies.

Your Reasons for Exiting

As for your personal goals, here are the questions you can expect, according to Axial:

  • What are your primary goals in exiting? (E.g., maximize price, retain a majority/minority ownership, etc.)
  • What are your primary goals in finding a financing partner for your business? (E.g., ensure your company’s legacy, take care of your employees, risk diversification)
  • What do you stand to lose by not completing this transaction?

These questions point out the benefits of what our dealmakers encourage: self-reflection. Be sure you truly know your personal motivations in exiting. Are you doing this to close a deal with a buyer, or are you just testing the waters? If you’re testing, buyers will be wary of working with you for fear you might back out at the 11th hour. And if you can’t answer these questions, buyers will take that as your reply and will move on to the next opportunity.

Spend time with key advisors, your board of directors, spouse and close friends. Help them help you understand where your mind is in this. This is one of the HUGE benefits of hiring the Generational Group as your M&A advisor. We spend quality time with our clients during and after our evaluation to ensure that they are really motivated, driven and truly desirous of moving forward.

If you would like to see Axial’s complete set of questions that you may encounter, follow this link: 17 Common Questions Investors Ask Owners.

But this is just one side of the equation: in a couple of weeks we will also cover questions YOU should prepare in advance for a buyer as well. For this is like any marriage: both parties need to be satisfied with the answers.

To learn more about the Generational Group and the services we offer to prepare business owners for buyer questions, please visit our website at:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.

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