As brokers, we don’t often have to prompt buyers with questions to ask sellers. They often come with their own lists, developed from curiosity and perhaps articles like these. While each broker has different questions they like to ask sellers, there are a few that everyone who is interested in buying a business should ask.
There are many answers to why someone wants to sell their business, and there isn’t really any “right” answer. There may be some “wrong” ones, though. There may be changes in the market which may make the future seem less bright for the industry. There may be staffing issues. Perhaps a new competitor has moved in and sapped the last of the owner’s resolve. These are “wrong” only insofar as they aren’t the best reasons for the seller to sell. But they represent great opportunities for the opportunistic buyer who has his/her eyes open but is also willing to put in the work if the business isn’t being handed over in ideal circumstances.
Tim Ferriss popularized and put into business context what had previously been known only to scientists and researchers as Pareto’s Principle: what are the 20% of activities that lead to 80% of the business income? Or framed another way: what 20% of customer service issues take up 80% of your time? There are many ways that a functioning business deals with these ratios. An informed seller has thought through these implications, though perhaps not in this ratio, and should be ready to give some answers (and corresponding strategies) to this question.
What is the cycle of acquiring and keeping good staff? All seasoned business owners know that even the best, most aligned employees can move on after a number of years of good service. But there should be a history of employment that can give an incoming owner a roadmap to acquire new staff should the current employees move on with the outgoing owner.
If Not This, What?
If you didn’t sell the business, what would you do for the next two years? Again, this might give you more insight into the personal life of the seller than the business, but good chances are that you’ll see an indication of either continuing on or push for growth. If a business is in a position to sell, that means it’s healthy enough to support (or adapt to) an owner’s desire to work in more of a relaxed, lifestyle capacity or his/her desire to double or triple down and grow the business. Follow up questions of why in either of these veins should give great insight into the fundamentals of the business.
The Daily Challenge
It’s often said that some business owners go to sleep with their businesses in their mind and wake up to those same thoughts first thing in the morning. Even if a seller doesn’t think about his/her business this way, there’s a fundamental challenge to running the company. What is the most challenging aspect to running this business on a daily and ongoing basis? The answer to this question should go right to the heart and mind of the potential buyer: do I have what it takes to do this? Or even better, am I perfectly qualified to do this?
Now, enough of the questions, you might say, how about some answers? We’ve got plenty of those here at Apex. Give us a call and give us a chance to answer!