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Do not waste time with a buyer who immediately wants to earn more than your business can pay.
Refrain from telling a buyer that your business will earn the profit he needs, especially if he or she must improve the business. Your attorney can explain the substantial risk you take when you convince a buyer that a business’ profit will increase.
Expect definitive answers. If a buyer has difficulty answering your questions, you have a clue as to what you can expect throughout negotiations and after the sale.
The art of screening buyers
Of course, you must ask a potential buyer more questions than we have room for here. And knowing the questions is not enough. You must understand the appropriate response to each question, before questioning begins, so you don't waste time with unqualified buyers or have a savvy one take advantage of you.
It takes most owners a long time to sell their business because they practice “selling” until they make the sale. This is why sellers often settle for terms that favour the buyer.
Your advisors should familiarize you with what intelligent buyers, their advisors, and their sources of financing will want to know about your business. It will cost you time and money if you fail to anticipate each item of inquiry, or if you do not honestly and properly disclose information on each topic. It can cause you to be sued for fraud or misrepresentation; force you after the sale to make costly settlements with a disgruntled buyer; put you into personal bankruptcy; and damage your reputation and credit.
Always assume a buyer has the advantage
Three ways to be prepared
You know more about the business than the buyer does, even when you've made every attempt to make full and honest disclosure. If the buyer regrets having bought the business, your omissions or misstatements can be the basis for a dispute. The first challenge in screening buyers and working with brokers is to begin a relationship from an organized method of disclosure. Make sure you're both accountable. If a buyer balks at your approach, be suspicious.
Some people believe nobody sells a winner. This can be particularly true with small businesses. Consequently, expect buyers to be sceptical of everything you say. Their scepticism will diminish in direct proportion to how well you assemble your information and how you respond to questions about it.
If you appear to be nervous, a buyer may believe you're hiding something. If you can't handle negotiations like a pro, get coaching or involve a professional seller-advocate. Do not assume a business broker will handle all the negotiations. Get a legal review before you finalize transaction decisions or sign documents.
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