Here is part 9 of our 10 do's and don'ts of business selling. We gained these insights from hard-won experience and observing what can happen in the business selling market!
9. DON’T – Allow due diligence without commitment
Do – Prequalify potential purchasers
Critical in any sales process is to make sure you understand the objectives and motivations of the potential purchaser, and the likelihood that they have the funds available to make the purchase.
Whether you’re selling a suit in a shop, a mobile phone, or a business, the earlier you can understand the motivations and capabilities of the potential purchaser, the better placed you’ll be to determine the likelihood that they will actually commit to and complete the sale.
Often we see people selling their own businesses – including quite large businesses – who allow potential purchasers to do due diligence on very detailed, sensitive information about the business with little prequalification and/or commitment sought from the purchaser.
Here I’m using the word ‘commitment’ in the broadest sense. It can mean a number of things, such as:
- signing a heads of agreement documenting the non-binding terms each party is happy with prior to allowing them to do due diligence;
- the purchaser making a holding deposit to show their commitment to the sale; or,
- simply having the purchaser document their offer price and key terms.
Prequalifying potential purchasers is critical to making sure a business owner isn’t exposed to someone simply doing a research project and then going into business themselves as a result of the information they’ve found.
Remember, of course, not all purchasers have a clear idea of their objectives up front.
As a business seller you need to protect yourself from this because people can change their minds.
By ensuring you have a good advisor helping you, or by ensuring you focus on prequalifying purchasers up front, you can sift the wheat from the chaff.
If you would like advice or support to sell your business, contact the experienced team at JPAbusiness for a confidential, obligation-free discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.
From the JPAbusiness archives, refreshed and checked for accuracy December 2016.