How to Qualify Buyers
Updated: Aug 27, 2021
I’m selling my business and am in discussions with a potential buyer. About 3 or 4 months into the conversation, I am realizing this buyer is not able to get the financing needed to buy my business. The buyer’s bank has reviewed the buyer financials and they are very lite. We are searching for other avenues of financing, but I am realizing, this effort and diversion from running my business has not brought me closer to selling my business and retiring.
This situation is very common, which is why it is so important to qualify interested buyers before spending too much time on a non-starter. So how do you do this?
Spend the time discussing the buyers’ financials. A serious buyer will not have a problem proving their financially strength. Write down questions you have. What do you want to see that will give you confidence in this buyer? What do their assets and debts look like? Do they have money set aside for this transaction? Take the time to discuss every question you have. This is an opportunity to learn more about the buyer regarding financials as well as other insights.
Request the buyers recent credit score. If it is below 700, you need to get some history on the events that lowered the score.
Ask non-financial questions as well. Request to see the buyer’s resume especially if there is no industry experience. Can they lead people and projects? Have they owned a business in the past? Soft questions such as where does the buyer live or where did he/she grow up, do they have a family, where did they go to college, etc. are valid. It’s so important to get to know your buyers before going too far down the line.
Still on the fence? Asking for proof of funds is appropriate at this stage. A serious buyer will be able to provide evidence that they have funds or (aka equity injection of 10,15,20% down) to obtain the loan.
Another route is to speak with a lending professional and describe the buyer’s financial situation. Get the lenders’ perspective on this buyer. Do they see a red flag? What else would they want to see from the buyer to proceed?
Each step of the selling process has many layers. Sellers can spend decades building a business. Don’t jeopardize the sale of your business by overlooking these important steps. An experienced Business Broker will do this work for you and only bring you qualified buyers. Your broker will know a lot about the buyer and feel confident in their ability to acquire your business before you meet this person.
Contact Agency Professionals to learn more about qualifying buyers and the full process of selling your business and gaining the most value.