We have done some recent introductory management presentations and there are some questions that
buyers almost always ask in the “get to know you” phase. We outline them below and present our opinions on how to respond. Of course every meeting will be different with buyers focusing on different things and in no way should our suggestions be held as gospel, but there are “ok” answers and “better” answers.
Here are our thoughts:
1. Why do you want to sell your business?
It’s the most common ice breaker, but it’s also a bit of a trap question because if your business truly has bright future—and you want the buyer to believe that’s the case—the obvious question is: “Why do you want to sell it, and do would you want to sell it now?”. In many ways it’s the easiest to answer. Be honest and truthful as to your rationale; most buyers will respect an entrepreneur who wants to take some chips off the table to solidify some family wealth. It’s also a great place to plant some seeds around transition timelines and deal structures (highlighting the recognition of a potential earn-out for example).
2. Who are the critical members of your team?
The acquirer wants to understand how reliant the business is on you, the breadth and depth of your operational and back office team and determine specifically which members need to be motivated and retained post-purchase. It’s also a question that entrepreneurs who don’t prep for this question often answer by bragging about all the things that you as an owner do in a business. Resist that answer – all it does is show that that you don’t have an infrastructure behind you (and can cause concerns with a buyer that the business may collapse without you).
3. Who buys what you sell?
This is a two prong question. Strategic buyers will be searching for any possible synergies between what
you sell and what they sell. The more you know about your customer demographics, the better the buyer will be able to assess the strategic fit. If your customers are other businesses, a buyer will want to know what functional role (e.g., training manager, VP of sales and marketing) buys your product or service. They also want to understand how much client concentration you have. Too few customers is a big red flag as losing even one can have an impact on revenues.
4. How do you make what you sell?
This question is asked in an effort to size up the uniqueness of your formula for creating your product or service. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. For various reasons, they will also want to understand if the creation of your product or service is dependent on any one person.
5. What makes your product truly unique?
A buyer is trying to understand how big the moat is around your business and what kind of protection it offers from competitors who may decide to compete with you in the future. What have you done to safeguard yourself against the competition and what are the barriers to entry for a competitor?
6. Can you describe your back-office setup? Moat buyers will try to understand how easily they can integrate your back office into their operations. They’ll want to know what bookkeeping and billing software you use, how customers pay, and how you pay suppliers.
7. Who are your competitors and are some better/worse and why?
An acquirer, especially if they are a strategic may be interested in learning about who else they could target (but its highly likely they already know that). More what they are trying to assess is how well you know your market and your competitors and how much you may be able to be a price setter in your market vs. being a price taker.
Of course this is not an exhaustive list, but it’s a good start when you’re preparing to represent your company to your potential buyers.