Successfully selling your business requires anticipating and answering tough questions regarding your company. By understanding what buyers want to know about your business ahead of time, you can preempt difficult conversations. This helps you create a trusting environment and build a solid working relationship with your buyer.

In this article, we discuss how to answer tough buyer questions as well as nine things buyers will want to know about your business. These include:

• Business trends
• SKU or ASIN count (for ecommerce businesses)
• Risks
• Revenue channels
• Target market
• Future opportunities
• Third-party documentation
• Owner time requirements
• Accounting records
• Transferability

Related Article: Best Practices for Preparing an Online Business for Sale

How to Answer Tough Questions

Before we jump into some of the tough questions you are likely to encounter, we’ll first explore how you should approach these questions. The way in which you anticipate and address tough questions has a big impact on the nature of your relationship with your prospective buyer.

Be transparent

Every existing business has unflattering aspects or qualities. True, some have more than others, but they all have them. When selling your business, it can be natural to want to minimize or hide these qualities. By doing so, the hope is that the buyer will not notice the unflattering qualities, thus helping you present a more attractive and valuable business.

Don’t do this. 

For starters, it’s just the wrong thing to do morally speaking. Most of us know this already. Taking shortcuts or being dishonest is a great way to develop a bad reputation in life and in business.

Secondly, it won’t be successful. Buyers will find the unflattering aspects of your business during due diligence, at the latest. When they do, they are likely to pull out of the deal entirely. At the very least, they will lose trust in you. You aren’t keeping anything hidden from them by lying—and you are souring the relationship in the process.

Instead, be transparent and honest about the positive and negative aspects of your business. From the beginning, be open about your business’s strengths and challenges. Answer questions directly and honestly. Be able to explain how your business performs and the reasons behind its performance.

“The way in which you anticipate and address tough questions has a big impact on the nature of your relationship with your prospective buyer. “

Share the information on your terms

By addressing difficult questions head-on, you get to decide how and when you share challenging information. Instead of being on your heels when tough questions come up, you can volunteer the information up front at a time of your choosing.

Focus on building trust

Business deals often live and die on trust. If you don’t have trust, it will be very difficult to navigate the selling process and pull off a successful exit. One of the easiest ways to destroy trust is to withhold pertinent information.

By being direct and up front with potential buyers, you automatically foster trust. Trust creates goodwill and increases your chances of receiving competitive offers. In addition, a strong foundation of trust will help you and your buyer navigate the complexities of the exit process. If unexpected challenges arise during the process, your solid working relationship will help you navigate them more successfully.

9 Things Buyers Want to Know about Your Business

Below, we discuss nine common things prospective buyers will want to know about your business before considering an offer.

Business trends

When making a purchasing decision, smart buyers are looking for businesses that will yield a high return on investment. One of the best ways to do this is to buy a business that they expect to grow into the future. As it turns out, one of the best ways to determine the future performance of a business is to look at its past and current trends.

For this reason, financially qualified potential buyers will take a close look at your business trends. Specifically, they will be curious whether your revenue and income have been growing, staying even, or declining. Likewise, if you run a content site or blog, they will also want to know the trends for your site traffic.

While past and current growth trends don’t fully explain future performance, they do help to paint a clear picture of your current business. Be prepared to show interested buyers your business trends up front as opposed to making them figure them out on their own.

In addition, be able to explain the trends in detail, including the reasons for the trends. If your business has been in decline recently, you must know why it has been declining and have a plan to turn things around. If business is booming, be able to explain what is going right.

“Be prepared to show interested buyers your business trends up front as opposed to making them figure them out on their own.”

SKU or ASIN count (for ecommerce businesses)

If you are selling an Amazon or ecommerce business, prospective buyers will want to know your ASIN or SKU count. In other words, they will want to know how much inventory you have on hand. Organize this information beforehand, and be prepared to present interested buyers with up-to-date inventory information.

Risks

From a buyer’s perspective, investing in a business is always a risk. You never know if a business will succeed or go bust once you take over ownership. To increase the chances of success, buyers will closely evaluate your business for factors that minimize or increase its risk of going bust.

Businesses whose performance relies on a single point of failure are generally riskier than ones with diversified operations. For example, if your business only has one marketing channel, it will take a major hit if that channel suffers. On the flip side, businesses that rely equally on multiple marketing channels will still be profitable if one or two suffer.

“Know what questions prospective buyers will ask and be prepared to explain your risk profile in detail.”

Businesses also suffer varying degrees of legal risk. If your business is the target of a patent infringement lawsuit, buyers will recognize this as a major risk factor. Or, perhaps your business formation documentation was never completed correctly, you never adequately protected your intellectual property, or you failed to consider liability issues. These would all count as qualities that increase the risk of your business.

As a business owner, you should be aware of your business’s risks. Know what questions prospective buyers will ask and be prepared to explain your risk profile in detail.

Revenue channels

Smart potential buyers will want to get a clear idea of your revenue channels when deciding whether or not to make an offer. This will help them understand the performance of your business and identify areas for future improvement.

Again, the more diversified your operations are, the better. If the vast majority of your revenue comes from one product or channel, buyers may be warier. If you have time, it may pay to diversify your revenue channels prior to listing your business for sale. Regardless, be prepared to answer detailed questions regarding your sources of revenue.

Target market

As a business owner, you must have a clear idea of who your target market is. Buyers will want to know all about your target market when analyzing your business. If you are not able to communicate clearly about your target market, prospective buyers will take note.

Be prepared to clearly define your target market. Furthermore, be able to show them the sales data supporting your claims. Know who they are (age range, interests, gender, income levels) and what motivates them as consumers.

Future opportunities

Your business trends aren’t the only information a buyer uses to assess potential future performance. They will also take a close look at any low-hanging yet unrealized opportunities for future growth.

This is an opportunity to highlight areas of your business that could drive future growth. For example, let’s say your business is doing well with only one marketing channel. You could potentially drive significant growth by launching additional marketing channels. (This would have the added benefit of diversifying your operations, thus reducing company risk.)

Before you list your business for sale, go through your operations and identify opportunities for future growth. Document them and be able to clearly communicate these opportunities to interested buyers. By doing so, you can turn perceived weaknesses into strengths and attract greater interest.

“Before you list your business for sale, go through your operations and identify opportunities for future growth.”

Third-party documentation

Astute buyers want to know they are buying an organized and well-run business. One of the best things you can do to assure buyers that you run a tight ship is to have clear and orderly third-party documentation.

Third-party documentation includes agreements and communications between you and suppliers, vendors, and contractors. It could also include financial statements, sales transactions, and tax returns. When evaluating your business, buyers want to know that the information you present to them is accurate. Verifying third-party documentation is one of the best ways buyers can check the accuracy of your claims.

Make it easy for all buyers to verify third-party documentation. Don’t make them comb through disorganized records for each piece of information they seek. Keep orderly records, anticipate their questions, and prepare the information ahead of time.

Owner time requirements

One of the best aspects of owning and running a business is the potential to earn a good living while not needing to work very much. Of course, some business owners would disagree, finding themselves buried under responsibilities.

Potential buyers will want to know how much time you spend running your business on a weekly basis. They will then use this as a benchmark to estimate how much time they think the business will demand from them.

Long before you sell your business, consider taking steps to automate your operations to reduce your time requirements. Hire teams or individuals to take over day-to-day operations and create standard operating procedures to streamline your processes. By doing so, you can provide an encouraging answer when a prospective buyer asks you how much time you put into the business.

“Potential buyers will want to know how much time you spend running your business on a weekly basis.”

Accounting records

All other things being equal, buyers want to find a business with organized and professional accounting records. By maintaining income statements with accurate and complete information, you make it easier for a potential buyer to see how your business is performing.

Many owners commonly sell (or try to sell) their business without clear documentation. Clear and orderly accounting records also help to convey that you are running your business in a responsible and professional manner.

Transferability

If your business can’t be transferred to a new owner without hurting its performance, it will struggle to attract qualified offers. Smart interested buyers will examine your business to ensure there are no barriers to transferability.

Common qualities preventing a successful transfer include:

• Reliance on the owner’s image, likeness, or personality
• Disorganized operations requiring significant owner management
• Specialized knowledge or certifications to run the business

Transferability barriers can’t be addressed overnight. Leave ample time to identify and mitigate barriers to successfully transferring your business. If any remain when you sell your business, be up front and honest about the issues. Depending on the significance of the issues, be prepared to receive lower offers than you otherwise would.

Conclusion

Understanding what buyers want to know about your business and communicating clearly with them sets the foundation for your buyer/seller relationship. Many sellers choose to work with a business broker to help them identify and clarify this information.

A knowledgeable business broker will be able to help you communicate the unique challenges and strengths of your business to interested buyers. By doing so, you can build trust and create the environment for a truly successful exit.