What Defines a Serious Business Buyer?

How will the buyer be funding the purchase?

Buyers should be knowledgeable about the size of the business they are qualified to purchase. Will the buyer be utilizing personal funds for the transaction or will third-party financing be used? Most acquisitions (without real estate) require 25% of the purchase price as a down payment. (Funds needed for closing costs and working capital are often provided as part of the loan package and can be financed.)

Buying and selling a small business requires a two-way exchange of information. The buyer should be ready to disclose the amount they can invest and have a detailed plan on how they will finance the entire transaction. The idea that the seller is going to finance the sale is not a plan and this type of buyer will be quickly dismissed. Business brokers can be a great source for recommendations on which lenders are appropriate and likely to finance the business they represent.

The buyer should have a current personal financial statement prepared. If bank financing will be utilized, the buyer should be clear on their borrowing capacity and have a lender prequalification letter in hand (a banker can prepare this in a matter of hours). Don't expect the broker or business seller to provide complete access to sensitive and confidential business documents without receiving assurances that the buyer has the appropriate resources to either purchase the business outright or obtain a business acquisition loan.

What industry experience or transferrable skills does the buyer have?

The optimal situation is when the prospective buyer has direct industry experience site. This is especially pertinent when bank financing will be involved. Obviously, every business is different and each will have unique requirements for successful ownership. For some businesses, the buyer may be able to satisfy this requirement by having related practical work experience or transferrable skills. Certain businesses may require licenses, certifications, or particular expertise to operate. If the buyer does not possess these it will be critical to confirm that there is a manager or key employee in place that has these qualifications. In other situations, the business may be very specialized and a buyer lacking a critical credential will be disqualified from obtaining bank funding. These issues should be discussed early in the process as the business broker will need to determine if you are managerially qualified to operate the business.

What is the type of business the buyer is seeking and why?

A serious buyer has developed detailed and concise "investment criteria" for the business they seek to acquire. Several investment criteria attributes will include the type of business, the industry, the geographic location, the size of the business, and the price/value of the enterprise.

Serious buyers will focus on enterprises that are suited to their background and qualifications. A buyer who inquires about an industrial packaging distributer, a restaurant, and a custom millwork company will not be treated as a serious candidate. Having an investment criterion that relates only to "profitable businesses" or "those businesses which generate a minimum of $150,000 in cash flow" without regard to the business type, industry served, geographic location and size is a clear red flag that the candidate has not put the proper time into honing their acquisition objective.