Screening Potential Buyers for Your Business

When selling a business, you may have a number of potential

buyers. Some of these will be serious candidates, while others are simply gathering information for their own personal and professional reasons. A third group of “potential buyers” will be seriously interested but are not in a realistic position to purchase the business.

Discussing the business with prospective buyers and reviewing all of the details will take you away from your day-to-day responsibilities, so you’ll want to avoid wasting valuable time with "tire kickers" — people who like to window-shop but have no intention of buying the business. Therefore, you will want to establish a screening process well in advance. In that way, when you hear from prospective buyers you can quickly determine into which category they fall.

It’s okay to provide some general information on the business, but do not offer any details until you find out if the individual or company is serious about purchasing your business. Ask your suitors what they plan to offer, how they intend on financing such a purchase, and what they expect from you as the seller in terms of staying on to train or consult. Sometimes a competitor will express interest in buying your business. You may detect that your competitor is only seeking information and not earnestly seeking to purchase the company. A shrewd competitor posing as a prospective buyer can undermine your sales efforts and even devalue your selling price. It is, therefore, important that once you start discussing the business with any prospective buyer that you have that person sign a confidentiality agreement that’s been drawn up by your attorney.

Some buyers will have financial backing while others will need to either secure bank financing or seek financing from you. Either way, you will need to have accurate financial information to determine if they pre-qualify for a loan. If the potential buyer seems serious, you can also request a written expression of interest.

This document should include the type of transaction, sales offer (or a range), and other details of their proposed purchase. Consider crafting a template for this expression of interest and give it to potential buyers. This will make it much easier to compare multiple buyers when you make a decision.

Although the expression of interest is not a binding document, it can help weed out most of the individuals who are not seriously interested in making you an offer.

You will also include your own needs in the screening process. For example, if you want to remain active as a consultant in the business after it sells, you can screen out buyers for whom that would not be in their (or your) best interest. If buyers need financing from you, you may screen them out in favor of those who have financing from another source.

You may also choose not to consider a buyer who will replace your existing staff with employees of their own. Whatever specific considerations you may have, include them when screening out potential buyers. Once you have gathered information from a prospective buyer, if the data fits your criteria, you will then need due diligence to learn about the buyer. Research carefully, and make sure you use up-to-date sources.

Ultimately, screening is designed to help you save valuable time and to ensure that your needs are met. In this way, you will find only those buyers whom you believe can offer you the best buying price.