Questions you should Ask the Seller and/or Business Broker
Mon, 8 February 2010 AEST
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PrintFrank Sirianni
Despite all the negative news, businesses are selling and Australia remains relatively robust in economic terms. You can make a difference in making the market. However, the devil is in the detail and buyers must beware.
No longer is it a case that simply owing a practice means that you will make money. Now more than ever, good businesses will sell at a premium and marginal businesses will remain on the shelf!
When looking at any practice for sale, it is important that you meet both the Seller and the Business Broker. Understandably, your initial meetings will be with the business broker.
Prepare yourself properly for these meetings. While there are a number of questions you should ask; be prepared, work to a plan, and react to how the meeting(s) progresses. You should work towards an outcome which clarifies the strengths and weaknesses of the business as well as the role which the vendor plays in the practice.
Here are a few of the questions to ask the seller and/or the business broker:
- What do you do everyday? (or if you are dealing with the broker - what does the vendor do at the business each day?)
This question is designed to ascertain how important the vendor is to the business performance of the practice and what input you will need to make to the business once the current owner sells. - Why are you selling?
This question needs to be approached with caution. However, it is important to ascertain why the practice is for sale. - What is it that you like best and least about the business?
Often the seller and/or business broker have a good understanding of what the best features of the business are. They may be reluctant to discuss the worst features - but probe these areas. - What do you believe is the profile of the ideal buyer for this business?
Again, this may assist in getting an understanding of what a buyer will need to do to maintain or get the business back on track. - What can be done to build the practice? What improvements would you make if you didn't sell?
This can give you some insight to the business problems. It can also give you an invaluable understanding to the business. - How long can I count on you to work with me after the sale?
In many cases the vendor will not remain after settlement. This can be difficult for some practices. However, it is important to test whether the vendor is confident to offer support or involvement with the business after sale. - What keeps you up at night about the business?
Again, this question may not suit all situations. However, it does assist to identify what are the problems with the practice. - What are the details of the lease? How long? Any options? Do you anticipate any problems with the landlord assigning it to me or entering into a new lease?
Often this will be a condition of the sale. However, most banks will not finance an acquisition if there is no transfer of lease or suitable security of tenure. - How much vacation do you take?
This question will help you to ascertain whether the business will transfer to you. If the current owner takes no holidays, it is likely that the business requires full-time owner input or perhaps it cannot sustain a locum? - Are there any employees that are critical to the business? Will they stay on?
The key to the transferability of business to you will often relate to the key staff staying with the practice. It is important to find out early if the vendor plans to take any of the key staff with them. - Are you willing to finance part of the purchase? If not, why?
This may help you to fund the purchase. However, it may also help you to ascertain how confident the vendor is in the business.
While the answers to these questions are critical, it is also important to observe how the responses are given, their confidence, and how well they understand the business.
Other issues to cover in the meeting(s), aside from gaining a better understanding of the business, include:
- enabling you to confidently make an offer.
Good practices sell fast. You are competing with seasoned buyers, be prepared and know what you want in your practice. - get a feel for whether you have the professional and commercial skills to run this practice. Also try to ascertain whether you would enjoy running the practice.
- you are selling the seller and/or broker a solution to their problem - the need for a ready and willing buyer capable of consummating the transaction.
Make sure you demonstrate to them that subject to confirmation of the key facts, you are ready and able to buy the business.
For more questions visit Ask an Expert at http://experts.medici.com.au/
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