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8 Questions to Prepare for When Selling Your Business

Selling your business can be a rewarding and profitable decision, but it also comes with its own set of challenges. One of the most difficult aspects of the selling process is answering the questions that potential buyers will ask you during management presentations. These questions are designed to evaluate your business’s performance, potential, and fit with the buyer’s strategy.

To ace these presentations, you need to be prepared to answer any question that may come your way. Below we’ll delve into some of the most common questions you can expect when selling your business, and how to answer them effectively.

 

1. Why are you selling your business?

This is one of the first and most important questions that buyers will ask you. Your answer will reveal a lot about your motivation, credibility, and confidence in your business. Therefore, you need to be honest and clear about why you want to sell your business and avoid giving vague or contradictory reasons.

 

Some of the valid reasons for selling your business are:

  • You want to retire or pursue other personal or professional goals.
  • You have reached the peak of your business’s growth potential and want to cash out.
  • You are facing health or family issues that prevent you from running your business effectively.
  • You have received an attractive offer that meets your valuation expectations.

 

Some of the reasons that may raise red flags for buyers are:

  • You are struggling to keep up with the competition or market changes.
  • You have financial or legal problems that affect your business’s viability.
  • You are burnt out or bored with your business.
  • You have unrealistic or inflated valuation expectations

2. How much do you spend to get a new customer? 

Customer acquisition cost (CAC) is the amount of money you spend to acquire a new customer. It is calculated by dividing the total marketing and sales expenses by the number of new customers acquired in a given period. For example, if you spent $10,000 on marketing and sales in a month and acquired 100 new customers, your CAC would be $100.  While this metric is most commonly used in subscription services (SAS, Club Membershipts etc) it can be useful to consider the cost of customer acquisition in other industries as well.

Buyers are interested in knowing your CAC because it indicates how efficient and effective your marketing and sales strategies are. A low CAC means that you can attract and convert customers at a low cost, which implies a high return on investment (ROI) and profitability. A high CAC means that you are spending too much money to acquire customers, which implies a low ROI and profitability.

To answer this question, you need to provide your CAC for the past year or quarter and explain how you calculate it. You also need to provide some context and benchmarks to show how your CAC compares to your industry average and competitors. If your CAC is higher than the norm, you need to justify it by showing how your customers have a high lifetime value (LTV), loyalty, or retention rate. If your CAC is lower than the norm, you need to highlight how your marketing and sales tactics are unique, innovative, or scalable.

 

3. How big is your share of the market?

Market penetration rate is the percentage of your target market that you have captured with your product or service. It is calculated by dividing the number of your customers by the total number of potential customers in your market. For example, if you have 1,000 customers and your target market consists of 10,000 people, your market penetration rate would be 10%.

Buyers are interested in knowing your market penetration rate because it indicates how much room for growth your business has. A high market penetration rate means that you have a large share of your market, which implies a strong competitive advantage and brand recognition. A low market penetration rate means that you have a small share of your market, which implies a large untapped opportunity and potential for expansion.

To answer this question, you need to provide your market penetration rate for the past year or quarter and explain how you calculate it. You also need to provide some context and benchmarks to show how your market penetration rate compares to your industry average and competitors. If your market penetration rate is higher than the norm, you need to demonstrate how you can maintain or increase it by leveraging your strengths, adding value, or innovating. If your market penetration rate is lower than the norm, you need to show how you can improve it by targeting new segments, expanding geographically, or diversifying your offerings.

 

4. Who are your key team members?

Your team is one of the most valuable assets of your business, and buyers want to know who they are and what they do. Your team members are the ones who execute your vision, deliver your product or service, and interact with your customers. They also represent the culture, values, and skills of your business.

To answer this question, you need to provide a brief introduction of your key team members, including their names, roles, responsibilities, and qualifications. You also need to highlight their achievements, contributions, and strengths that make them indispensable to your business. You should also mention any incentives, rewards, or retention plans that you have in place to keep them motivated and loyal.

 

5. Who are your target customers?

Your target customers are the people who need, want, and buy your product or service. They are the ones who benefit from your value proposition, and who generate revenue for your business. Buyers want to know who your target customers are, because they want to understand the demand, potential, and fit of your product or service in the market.

To answer this question, you need to provide a detailed profile of your target customers, including their demographics, psychographics, behaviors, and preferences. You also need to explain how you segment, target, and position your product or service to appeal to your target customers. You should also provide some data and metrics to show how many target customers you have, how much they spend, and how satisfied they are with your product or service.

 

6. How do you create and deliver your product or service?

Your product or service is the core of your business, and buyers want to know how you create and deliver it. Your product or service is what solves your customers’ problems, meets their needs, and satisfies their desires. Buyers want to know how you manufacture your product or provide your service, because they want to assess the quality, efficiency, and scalability of your operations.

To answer this question, you need to provide a clear and concise description of your production or service process, from the sourcing of raw materials or inputs to the transformation or delivery of outputs, to the distribution or delivery of outcomes. You also need to explain how you ensure the quality, consistency, and reliability of your product or service, and how you measure and improve your performance. You should also highlight any proprietary, patented, or unique aspects of your product or service that give you a competitive edge or differentiation.

 

7. What makes your product or service unique or special?

Your product or service is not the only one in the market, and buyers want to know how you stand out from the crowd. Your product or service is what makes your business unique, valuable, and attractive to your customers and buyers. Buyers want to know what sets your product apart from others, because they want to evaluate your competitive advantage and market position.

To answer this question, you need to provide a compelling and convincing statement of your unique selling proposition (USP), which is the one thing that makes your product or service better, different, or special than the alternatives. You also need to provide some evidence and examples to support your claim, such as customer testimonials, reviews, ratings, awards, or recognition. You should also mention any barriers to entry, switching costs, or network effects that make it difficult for competitors to imitate or replace your product or service.

 

8. Can you describe your business operations?

Your back-office setup is the behind-the-scenes infrastructure that supports your business’s operations. It includes the systems, software, and processes that handle your accounting, finance, human resources, legal, and administrative functions. Buyers want to know about your back-office setup, because they want to understand the ease, cost, and risk of integrating your business with theirs.

To answer this question, you need to provide a brief overview of your back-office setup, including the tools, platforms, and vendors that you use to manage your business’s functions. You also need to explain how you ensure the accuracy, security, and compliance of your data, records, and transactions. You should also mention any challenges, issues, or improvements that you have faced or implemented in your back-office setup.

Selling your business is a complex and challenging process, but it can also be a rewarding and profitable one. One of the key factors that determines the success of your sale is how well you prepare and present your business to potential buyers. By anticipating and answering the questions that buyers will ask you, you can showcase your business’s strengths, potential, and fit, and increase your chances of closing a deal.

 

 

If you need more help with preparing your business for market or selling your business, contact The LIberty Group of Nevada. We are a team of experienced and professional business brokers who can help you with every step of the selling process, from valuation, to marketing, to negotiation, to closing. We have the expertise, network, and resources to help you sell your business faster, easier, and for the best price.