One of the earliest events in the sale process is a call between the seller and the prospective buyer. A broker should pre-screen buyers to make sure they’re A) serious about buying a business, B) informed about and interested in this business in particular, and C) have the means to finance a deal.
All of that is in service to efficiency. The last thing I want to do is to take up a seller’s time with a tire-kicking or unserious buyer. There may be more than one interested buyer for a company (in fact, we hope there are several) so there may be more than one discovery call. But none of them will be a waste of time.
Likewise, we make sure a buyer has most of the information he needs to see if the company is a good fit. The CIM (Confidential Information Memorandum) gives a prospect information about the company’s history, products, customers, financial performance, workforce, management structure, and operations. The CIM answers 90% of what any buyer needs to know, so the discovery call is more about fit than facts.
We schedule 45 minutes for a call, and these days, they’re almost all conducted by Zoom, so the two parties can assess body language and other factors that may make a difference. A broker’s role here is to make introductions, keep the conversation moving, and make sure the buyer and seller don’t get too far into the weeds or start a negotiation at this phase. If they do, a broker will move the conversation back to discovery.
Seller
I recommend that the seller prepare to tell the story of the company: when it started, the owner’s personal history with it (whether they were a founder or part of a family business, or bought the company, for example.) A brief overview of their history in the industry and what roles they’ve played in the company. A short discussion of the workforce and the customer base.
Talk about what matters to you, now and for the company’s next phase. It might be taking care of the people who have made you successful or maintaining the trust of your customers and the community. Be honest about any problems the company may be facing – it will come out in the diligence process anyway, so your honesty will build trust that you’re dealing fairly with the buyer.
The seller should also be ready to talk about why they’re selling now. It’s important to have a reason that makes sense: retirement, family issues the owner wants to focus on, or simply passing the baton to someone with a vision for the company’s growth. If there’s no clear reason, buyers often assume the company’s in trouble or the owner is burned out by the work.
Buyer
The purpose of the call for the buyer is to decide if this company is the right fit for you. You already have plenty of data; this is where you get a feel for what the company is now and how you might be able to provide value in the future.
You’ll start with a brief introduction of yourself and of your background in business and the industry. A buyer should always have a coherent reason why they’re interested in this company in particular. Even if it’s just “I’m looking to go into business for myself and searching for a company with strong performance and a lot of potential.” If you don’t have industry experience, be prepared to talk about how you’ll compensate for that.
Two questions a buyer should always ask: “Tell me about a day in your life running the company”, and “Do you have anyone in the company who is ready to step up and take on management (or more responsibility.)” These two questions will go a long way toward deciding whether this opportunity is the one for you. If the day-to-day workload for the owner doesn’t match your vision, there’s no harm in deciding not to pursue the opportunity.
The discovery call is the most efficient way to determine if we take the next steps to make an offer. If not, both the seller and buyer can move on and prepare for the right deal to come along.
