How does a Business Broker Qualify a Potential Buyer?
Business brokers always talk about “qualifying potential purchases”. But what does this actually mean?
When selling your business your business broker might interview up to 50 interested parties – it’s really no different to a real estate agent selling a house. One of the main jobs for a business broker is to separate potential buyers into qualified and non-qualified buyers. Some research has suggested up to 90% of potential buyers will not proceed to purchasing a business! It is little wonder business owners chose not to try to sell their business at the same time as managing their business, and instead employ a business broker.
The main factors business brokers consider when qualifying a potential purchaser are:
A buyer must have the financial resources to fund the purchase. In today’s current financial market it is not unreasonable to expect a potential buyer to have access to around 30-50% of equity to complete the purchase. The smaller the value of the business sale, generally the higher buyer equity is required. Banks have become a little more lenient of late however access to finance is still not as free as it once was. Buyers must also have access to funds for working capital requirements– remember funding the purchase price is only one financial element to buying a business.
Skills of the potential buyer
A potential buyer must have the skills or be in a position to learn the skills of the business for sale. However this is generally more applicable for smaller business with hands on owners. For example, a small restaurant with an owner chef will require someone with a chef/cook background or a plan to employ a chef with the required training.
How long has the buyer been searching for a business
Potential buyers who have been looking to buy a business for a long period of time will generally not be the buyer of your business. Mostly these buyers are not in a position to buy and are “treading water” or may have too high expectations.
What is the motivation for buying a business
A good business broker will find out the motivation of why a potential purchaser wants to buy a business. Buyers who come from a salaried background are less likely to buy a business however a business broker should not necessarily discount their interest. Some employees may be made redundant and buying a business is the next logical step.
If a potential buyer is enthusiastic it may indicate a more serious buyer.
Talk to your business broker to find out how they qualify their buyers.