When The Buyer Comes To Visit

One of the Most Critical Stages

There are many stages in the process of selling your business for sale. Although they may vary based on the situation, buyers will move through the following stages:

1. Initial interest. In this stage, the buyer has seen an advertisement for your business somewhere and wants to learn more. His interest is fleeting. The more information that you can present to him rapidly, the quicker you can move him to a more advanced stage.

Initial interest is best capitalized on by immediately providing a concise financial summary of the business as well a short description of the products, services, customers and suppliers.

2. Package Stage. In this stage, the buyer believes that what the business does and what the business earns fits his requirements. He wants to review a package that describes all relevant aspects of the business in a detailed and comprehensive fashion. Generally, he will do his own analysis of the macro and market factors affecting the business, and will match the results of his research with the information presented in the business package.

3. Telephone conversation. At this point, the buyer has a good understanding of your business. If he has taken the time to review your package, you can be sure that he is a serious buyer. The buyer will likely spend some time on the telephone clarifying some details in the package. If the buyer asks you some basic information that is already in the package, he is probably testing the validity and/or your knowledge of the business. If he asks too many redundant questions and does not reference the package, he probably is not very serious.

4. Onsite visit. The buyer is well informed about your business and now wants to see your operation. The onsite visit is most effective if the buyer can see your business for sale in operation. In other word, the buyer would most want to see you business during business hours. The challenge for many sellers is that they want to maintain some level of confidentiality but at the same time they would show the business in its best light. The buyer has to weigh his reasons for secrecy against the benefits of the best presentation. If the owner of the business for sale is committed to selling the business, he must educate his employees about the pending sale and provide the buyer with the best possible view of the fully operational business. You have laid the foundation, demonstrating the value of the business and your professional management style. Now you need to present your operations in their best light.

The Goal of the Potential Buyer’s Visit

If you have followed the progression of stages above and your buyer is asking to visit your facilities, then you are moving towards an offer from the buyer. Serious buyers will rarely waste time touring your facilities if they are not sincere in their interest. However, the proper presentation of your facilities is critical. Much in the same way you would prepare your home for an “open house” you should also think about the best way to present your business. The buyer should come away from the visit with three important perceptions:

1. The capabilities that you illustrated in your documentation and conversation should be readily apparent.

2. The business is organized and it is clear that all the employees are following well established business processes.

3. Either the owner of one of the employees can describe a particular process and how it impacts customers or suppliers.

In short, you are looking to impress upon the buyer that you are running a professional business.

Preparing for the Buyer’s Visit

There are several things that sellers of businesses for sale can do to prepare for a visit. Owners should be sure to educate their workforce on the very fact that the business is for sale. Many sellers will attempt to sell the business secretly. In many large organizations this is possible. Large companies have established management teams, very detailed books and records and probably a well defined track record. The potential buyers of a large business believe that the business can continue to perform its day to day operations without significant direction from the new owners. With small businesses often times this is not the case. The existing small business owner typically is heavily involved in the daily operations and has a small staff. Most educated potential buyers of small businesses can gain substantial levels of comfort with a business for sale by actually seeing the business and its employees in action. As a seller, you must understand the value of this and take the time to explain to your key personnel what changes may be coming.

If you have properly prepared the buyer with a concise, detailed overview of the business and validated via phone conversations his interest and comprehension, then the length of the buyer’s visit should not disrupt your daily operation. If you have prepared the buyer properly then he is looking to validate what he has learned and/or get a feel for your key employees. Serious buyers are likely to ask specific questions about processes, especially those that are in progress during the tour. The only way for employees to give answers with the right context is to be aware that the person asking the question may become the new owner.

Ideally, the business for sale is run in such a way that the facilities, equipment, inventory, etc. is continually maintained, both functionally and aesthetically. In other words, the shop is clean and organized and everything is fully functional. I looked at a business that distributed and serviced commercial lighting systems. I had difficulty finding the facility because the company’s signage only had three of the 18 characters still attached to the building. Nearly all of the inventory was covered in an inch of heavy dust and the offices were so crowded that when I asked for a particular piece of documentation, the owner banged around for nearly 15 minutes to produce a sales compensation plan that was 20 years old. One employee was working on a puzzle and another was eating cake. The landlord was “hanging out” in the office and gave me a harsh scowl. Nice.

A little spring cleaning goes a long way. People are generally impressed with things that clean, organized and “newish.” Take the time to spruce things up if necessary. In many small businesses, the owners often lament “the cobbler’s shoes.” Never mind the cobbler, his children or their sub standard shoes. You want to make a good impression and get the business sold at the right value. Take the time to ensure that your operations reflect your professionalism and the quality of your products and services.

I recently evaluated a company seeking investment. They were a small company that had shown a propensity for steadily losing money over the years and were seeking another round of investment. They specialized in helping businesses with search engine optimization. In other words, companies paid them to get their websites ranked well on Google, Yahoo, MSN, etc. Oddly enough, try as I might, I could not get this company to appear on any queries I made of any search engine. Apparently, they had never applied their specialty to their own web site. When I asked the CEO about this, he shrugged his shoulders and mentioned the cobbler’s shoes. The logical conclusion I drew from that observation and related conversation was that the company probably was not well run and perhaps they could not do as they claimed. This might account for their inability to make money. Had I gone to Google and searched search engine optimization and their site had placed in the top 5 search results, at least I could conclude that they had the ability to deliver results on at least one site.

Preparation at any stage of the sales process is critical, but you may need to make special efforts to ensure that your potential buyer can get the best perspective of your business. This includes preparing your staff to interact with the buyer if necessary and ensuring that your facilities and related equipment and processes are functioning properly. A kitchen looks better clean then dirty, and a clean kitchen is more conducive to selling a house. You are not fundamentally changing the kitchen in the home for sale, instead you are giving it a polish so that the potential home buyer can better appreciate it. In your business, you want to be sure that everything in your operation is clean as well, so that the buyer is not distracted by any unpleasantness that may allow him to draw the wrong conclusion.

Examples and Related Impressions

Recently, I made an offer on a manufacturing business. The books and records were clean and the package was relatively informative. The owner preferred to meet on site to discuss my questions. The seller actually had a good strategy. His facilities and operations were absolutely immaculate. The employees were aware that the business was for sale and they had taken the time to organize their financial paperwork with the help of their accounting staff. The buildings had a steady record in continuous improvement. They had a full time janitor on staff and their inventory, equipment and general layout of the shop floor was organized, labeled and safety inspected. The owners did all the talking and they were able to explain every aspect of the operation as we walked through. After seeing a number of manufacturing environments, this was the first I had ever seen that actually astonished me. “Wow,” I thought, “the books and the business are clean and well run.” They had peaked my interest. Within a few days, I did my research into the industry, the financials and the operations. Within one week I made an offer with the backing of my bank. The owner had not calculated a purchase price on the business, but instead was seeking offers. At this time, the owner sees nearly 2 to 3 times the value I placed on the business. The owners of this business for sale are projecting some incredible growth over the next three years, even though the business has been flat for nearly 5 years. This difference in growth speculation accounts for the difference. Either way, I do believe that this business is professionally run and that impression was validated by the physical operation itself.

On the flip side, I drive 3 hours yesterday to visit an operation in another state. I was rather excited about the business, because I understood the industry well and had been searching for a business in this industry for some time. The entire sales process for this business for sale was disorganized, but I accepted it and moved forward. Based on a scant paragraph of information, the owner and I verbally discussed the business and the financials over the phone. I was cautiously optimistic about this business because the numbers we discussed were very much in line with my search criteria. The owner of this business for sale was compiling his paperwork for me to review. Based on our conversation and my level of interest, I put aside several areas of concern. The owner was clearly not prepared to move through the sales process. He did not have a concise financial overview of the business, nor did he have a detailed package put together that I could review. Instead, we had a conversation where I attempted to wrestle these details from his memory. Had I not been well educated on this space, I would have not pursued it further. However, since this was one of my target spaces, I pressed on. The owner and I made plans for me to come to his main office and review the paperwork he had compiled.

When I arrived a few days later, I called from outside his location. Willing to be cautious of any confidentiality issues, I let him know that I was outside. His reaction was puzzling. He was alarmed. He ran outside his shop and met me outside. He started babbling about secrecy and how his employees didn’t know anything about the sale. He did not have any of the paperwork and said he would send it to me later. I had driven 3 hours to this meeting and wasn’t ready to simply leave empty handed. I asked him if his accountant had copies of the tax returns and he said that his accountant would tell his controller and then the cat would be out of the bag. He might want to think about a CPA with a bit more discretion. He confided that his controller did not know and that he would need to figure out a way to sneak the paperwork out. He concluded by asking, “do you need to see the office?” I responded that I did not, since I could get everything I needed by pressing my face against the glass windows. Actually, I indicated that I did want to see it.

I am not sure how this person normally acts, but his behavior certainly had to trigger some alarms with his employees. He ran around loudly announcing that I was his insurance guy and shushing every question I asked. His facilities were nice, customers were buying products and the employees were busy. The tour lasted 45 seconds and we went outside to talk. I struggled for the next hour to ascertain more facts about the business, his different locations, sales model, pricing, suppliers, etc. It was painful and redundant. I was thoroughly annoyed and had to face a 3 hour drive back home.

After I settled down, I called the owner to clarify exactly what financial information he was gathering and when I could expect it. He indicated that he had a conversation with his controller and she understood that he was looking to sell the business. He gave me her number and I spoke with her directly about what I was looking for. Hopefully, I will see this information in the next day or two.

As illustrated, this has been a miserable process. The seller is unprepared and has given me little reason to gain a favorable view of his business. If the paperwork surfaces and the numbers are in line with what was discussed, I expect that my due diligence process will be very intense. To highlight the importance of the preparation, I would pass this along. Some buyers, like myself, can move fast. The seller has an interest in selling the business quickly. Although I never revealed this to the seller, I actually had brought with me an offer letter for his business. I destroyed the letter on the way home. My overall perception of the business has deteriorated. If another materializes, it is not likely to be as lucrative as the first.

If you are presenting your business for sale, it is imperative that you do so in the best light. When presented properly, potential buyers are likely to make an offer, when presented poorly, buyers are likely to look for reasons to discount your business all together. Be sure that when potential buyers come to tour your facilities that you are prepared, your employees are educated and your operation is clean and functional. In this way, the buyer can learn the most about your business.