How To Choose a Qualified Buyer

Selling your business is a difficult and time-consuming task, particularly if you're not using a broker. It's important not to waste too much time with "buyers" who are going to do just that — waste your time.

The best way to distiguish the serious buyer from the time-waster is to determine the strength of their financing ability. A prospective buyer with little or no chance of raising the necessary capital to complete the sale is not a qualified buyer. Simply ask prospective buyers about their financing plans. If they can't provide concrete, educated answers, they may not be serious buyers. You may also be able to forestall unqualified parties by clearly establishing the value of the business in your selling memorandum. Find out more about this important document in What Is a Selling Memorandum in Connection with the sale of a Business?

Also consider a buyer's initial offer. If it is as low as 50 percent of your original asking price — or even lower — the prospect may just be looking for desperate owners in the hopes of scooping up a bargain.

Today, one option that many small business owners use to expand their base of qualified buyers is to offer financing themselves. If you choose to offer seller financing, have the buyer sign a loan agreement drawn up by your lawyer. Remember that when you offer financing yourself, you risk the buyer defaulting on the loan. One precaution is to ask for significant collateral on the amount of the loan. Even though you may have run your business profitably, there are no guarantees that the new owner will be able to do the same. Read Should You Help Finance the Purchase of Your Business? for more information.