Anyone who deals with the topic of buying a company will meet potential sellers sooner or later. The first meeting is usually by telephone. Either the prospective buyer has the first conversation with the seller’s advisor or with the seller himself. The first conversation can already decide whether the buyer is allowed to participate in the further process. A few important rules for the first conversation.
The prospective buyer usually becomes aware of a company to be sold via a few anonymised details. This can take the form of a Stock exchange advertisements or as Teaser via the network of the accompanying consulting firm. This serves the initial classification of the company and a first, rough validation of whether the offered company fits the search parameters of the prospective buyer. If the company is profitable, has been operating on the market for a long time and is solidly positioned, it can be assumed that there are a large number of potential buyers for this target. The seller is therefore in a comfortable situation and can choose the buyer that suits him.
What is important to the seller
As a rule, a seller does not choose the prospective buyer who will pay the most money for his business. For many entrepreneurs, their own business is a matter of the heart. A lot of time and energy has been put into building up and growing the company. Now the successor is supposed to continue the business. Here, the buyer’s vision is a decisive criterion. In the first conversation, the seller assumes that the price for the company, which is often mentioned in the anonymous information, can also be paid. After all, the prospective buyer has decided to make contact. However, in reality this is of course often different.
Price is the knock-out criterion
Buyers who cannot secure financing, are looking for a “bargain” or just want to make a quick purchase without an idea disqualify themselves very quickly in the first conversation. Moreover, those who only use the information from the teaser as a source of information and already talk about the price at this stage have usually not yet developed an idea for a purchase. Therefore, sellers often refuse to talk further with these prospects. Instead, they give preference to others.
The 5 wrong questions
These questions are often asked. They show little appreciation of the seller. This reduces the chance of acquiring the company. The end is already threatening at this early stage.
- Isn’t the purchase price set much too high? Why is the price greater than four times EBIT?
- Don’t you think that your industry hardly allows for growth anymore?
- Why is the EBIT so low? Shouldn’t it be much more with the turnover?
- Why do you have so many employees in the administration? Aren’t they superfluous?
- Is it possible to move the company to another city? Doesn’t the location have too many disadvantages?
The 5 right questions
Prospective buyers who ask the following questions (by way of example) are likely to get further in the process. The questions show genuine interest and appreciation. Consequently, a salesperson generally perceives these questions positively.
- What opportunities for growth do you still see? What are your plans for the future if you were not to sell?
- Would you be willing to assist me with your expertise for a certain period of time in the event of a takeover?
- What does their future look like after the exit? What are their personal plans?
- Which company would you like to have as a customer?
- How does your family feel about divestment?
These questions are, of course, only examples. But they show that appreciative questions can bring both sides closer together and open the door for further, sustainable discussions. In addition, the questions help to complete the overall picture and the intentions of the salesperson without being confrontational.
Tips for further reading:
Business sale vs. real estate sale
Advice traps in the process of business succession
The costs of a business succession or an M&A project
Company succession: Why a pure success fee makes serious advice difficult
Selling a company in the IT industry
Company successions in East Westphalia and Bielefeld are on the rise
Critical succession situation in NRW
The 5 most important contents of an entrepreneurial emergency kit
For most, the company is a matter of the heart. That is why many business sellers also decide against the highest bidder. Rather, they want to see the appropriate vision of the buyer. In principle, the seller assumes in the first discussion that the purchase price is commensurate with liquidity. Even if this solvency is not always given.
First of all, offensive pressure to close a deal should be avoided at all costs in the first conversation. Rather, the first meeting is about getting to know each other. In addition, there is an exchange about the individual ideas for the future of the company. You should go into the conversation prepared accordingly. This is the only way you can ask the right questions.
