Here are five questions business owners can expect on an introductory call with a business broker or M&A advisor:
1. “What does your company do, and how are you differentiated from your peers?”
An advisor will ask you to explain your current position in the marketplace and your plans to grow the business. Be prepared to talk about how you distribute your products or services, how your team is organized, how you generate revenue, and any unique strengths of your company or business model.
2. “Why are you interested in selling your business or raising capital and what do you plan on doing afterwards?”
This is the first and most important question brokers and advisors will ask. It is also the first question potential buyers and investors will ask.
Before speaking to an M&A advisor or broker, be sure to think about what you’re hoping to get out of a transaction — whether now or in the future. Is your interest based on the current market, a personal situation such as health or retirement, growth opportunities in the industry, or a combination of factors? How long do you plan on staying with the company after the acquisition? Are you planning on getting the “hell out of there” or willing to stay on for a period of time? The longer an owner is willing to stay with the company typically results in a great valuation for the business.
3. “Do you have a valuation or capital amount in mind?”
It’s OK if you don’t — but if you do have a specific amount in mind, advisors will want to understand how you came to that number. We ask this question because, more often than not, the business owner is unsure of the standard valuations in their industry. Many owners will base their valuation purely on the dollar amount they want or figures they have heard at cocktail parties. However, numbers can vary widely even within a specific sector.
4. “Besides an attractive valuation, what would a dream deal look like in your mind?”
Some owners are simply tired of the headaches of owning a business, but still would like to stay on with the business; others may want to leave but have their management team stay on. Are you willing to sell your company to someone who may overhaul your entire business model or start with layoffs, or is employee security your top priority? Whatever your answer, this question reveals other tangible and intangible items that are important to the seller. This information not only helps to further qualify the prospect, but gives the advisor further insight regarding how the prospect thinks.
5. “May I see your last 4 years of financials.”
M&A advisors and brokers will always ask for the financials. It is impossible to value a business without seeing any financials. The reason most advisors want at least four years is to see any trends in the business whether it being positive or negative. In addition, all good advisors will apply a weight to each year’s results when calculating revenue, cash flow, EBITDA, etc…