18 Dec Now that my business is on the market, what comes next?
Selling a business is an exciting process, but it also involves a degree of complexity and preparation that may come as a surprise. Sam Goldenberg & Associates works diligently to prepare the business prospectus, present a high-level of overview its financial performance, and launch it on the various online businesses-for-sale platforms. While these are all critical first steps, most business buyers will have a lot of follow-up questions. It’s more surprising when they don’t.
Buyers aren’t just purchasing your assets; they are investing in trust and confidence in your operation. Most buyers want to understand how your business operates, what influences it financial fluctuations, and whether key employee, customer and vendor relationships. This detailed understanding establishes their confidence that the business’s success will continue under their watch.
What kind of questions can you expect? While these will vary based on the nature of the business itself, these follow-up questions generally fall into three buckets: Financial, Operational, and Relationships.
Here are some common examples.
More Granular Financial Data
Buyers will want to go beyond the surface of your P&Ls, tax returns, and balance sheets. To help them understand the true picture of your business, prepare the following:
- Month-to-Month P&Ls: Offering month-to-month profit and loss statements for the most recent full year and year-to-date gives buyers insights into your business’s seasonal trends.
- Payroll Reports: Break down payroll details, including bonuses, pay cycles, and any non-standard compensation. Be ready to explain what’s necessary to maintain the business.
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Travel & Entertainment Expenses: If your financials include discretionary or personal travel, isolate purely business-related travel. Highlight essential travel, such as trade shows or industry events, and provide a true cost for maintaining these activities.
Likewise, if you treat your employees to a monthly lunch and this is now a common part of your company’s culture, be ready to separate this expense out from personal dining out expenses that have no real direct impact on the business. - COGS and Major Expenses: If there are significant fluctuations in your cost of goods sold (COGS) or operating expenses, be prepared to explain the reasons behind them, whether they are due to vendor pricing, one-time purchases, or other factors.
Understanding Gross Profit Margins
Buyers often focus on gross profit margins as a key indicator of business health. Be ready to answer:
- Are margins discretionary or capped by market dynamics?
- Are they influenced by Manufacturer’s Suggested Retail Price (MSRP) or other industry norms?
- How do you adjust pricing to respond to market conditions?
Clarifying these points not only gives buyers confidence but also shows your depth of understanding of the business.
Alleviating Concerns About Vendor Relationships
For many businesses, strong vendor relationships are crucial. If your vendors aren’t locked into formal exclusivity agreements, explain how these relationships will transfer to a new owner.
Be read to address:
- Safeguards in place to maintain these relationships post-sale.
- How risks of vendor churn are minimized.
Being upfront about these relationships helps reduce perceived risks and builds trust.
Clarifying One-Time Income Events
If your financials reflect a spike in income from a one-time project or large order, it’s critical to disclose this upfront. Buyers will want to know:
- Was this project a one-off, or are similar opportunities a regular occurrence?
- How many such projects can they expect annually?
- Are there opportunities to replicate this success?
Transparency about anomalies in your income will reduce buyer skepticism and encourage a smoother due diligence process.
Yes, Preparation Does Matter!
By investing time upfront in preparing detailed, transparent financials and anticipating common questions, you’ll streamline the process, demonstrate your willingness to be transparent, and go along way to fostering trust with buyers. Not only that, but these questions – and many more – will likely come up during the underwriting and valuation process.
Some preparation now can go a long way toward ensuring a smoother, more successful transaction.
