Questions to Ask When Selling a Business
Questions for an owner preparing to sell, to put to a broker, accountant or attorney: how the price gets set, how much of it is cash at closing, what due diligence will demand, and what you are still on the hook for afterward.
The questions
Open any question for the note
What is a realistic price range for a business like mine, and what did you base that on?
Why ask it
You are listening for comparable transactions with dates and sizes, not a multiple quoted from memory. An adviser who names a high figure without evidence may be pricing to win your listing rather than to sell the business.
Which earnings figure do buyers in my industry use, and what will they add back?
Why ask it
Small businesses usually trade on adjusted earnings, and the argument is always about which expenses count as owner benefit. Knowing which of your costs will be accepted as add-backs is most of the valuation conversation.
What in my books will a buyer discount or refuse to count?
Why ask it
Cash sales without records, revenue concentrated in one customer, related-party rent and personal expenses run through the company all reduce what a buyer will pay. Better to hear it now than during diligence, when it looks like concealment.
How much of the price is likely to be cash at closing rather than an earnout or seller note?
Why ask it
Headline prices often include money contingent on future performance you no longer control. Ask what proportion of recent comparable deals actually paid out, because that figure is the one that matters to your retirement.
What is your fee, when is it earned, and is there a minimum?
Why ask it
Success fees, retainers, minimum commissions and tail periods after the agreement ends all vary. A tail clause can mean paying a commission on a buyer you find yourself a year later, so read that term specifically.
How long do deals like mine usually take from listing to close?
Why ask it
Timelines of many months are normal, and the gap between agreed offer and completed sale is where owners burn out. An adviser who promises speed is either unusually confident or has not seen your paperwork.
How will you keep the sale confidential from staff, customers and competitors?
Why ask it
Leaks cost you key employees and give competitors a story to tell your customers. The answer should cover blind listings, staged disclosure, non-disclosure agreements and who inside the business is told at each stage.
Who are the likely buyers here: a competitor, a financial buyer, or an individual?
Why ask it
Each type pays differently and asks for different things. A competitor may pay most but wants access to sensitive information, an individual buyer usually needs bank financing, and a financial buyer will want you to stay involved.
What will make my business harder to sell than the average one?
Why ask it
Concentration in one customer, reliance on you personally, a short lease, unassignable licenses or missing paperwork are the usual culprits. An adviser who names three is being useful, and one who names none has not looked closely.
What could I fix in the next twelve months that would raise the price?
Why ask it
Some fixes, like documenting processes, cleaning up financials, signing customer contracts and separating personal spending, pay back several times the effort. Others do not move the number at all, which is why you ask rather than guess.
What documents do you need from me before we go to market?
Why ask it
Multi-year financials, tax returns, the lease, contracts, equipment lists, employee terms and licenses are the standard set. Preparing the package early is what keeps a buyer from losing confidence mid-diligence.
What does due diligence involve, and how much of my time will it take?
Why ask it
It is weeks of document requests and questions while you are also running the business, and owners consistently underestimate it. Ask whether the adviser manages the request list or whether that lands on you.
Will the buyer expect me to stay on, and for how long?
Why ask it
Transition periods of a few months to a couple of years are common, sometimes as an employee reporting to the new owner. If your plan is to walk away on closing day, that constrains which buyers make sense.
What will I be asked to sign about not competing afterward, and how broad is it?
Why ask it
Non-compete terms cover a defined activity, geography and period, and a wide one can prevent you working in the only trade you know. Negotiate the scope while you still have leverage, which is before the offer is accepted.
How much will I keep after tax, and does the deal structure change that?
Why ask it
Asset versus share sale, allocation across asset classes, and installment treatment can move the after-tax result substantially. The gross price is nearly meaningless until this is modeled with your accountant.
What happens to my employees, and what can I negotiate for them?
Why ask it
Buyers may retain everyone, retain some, or expect you to handle terminations before closing. Retention bonuses and continuity of terms are negotiable points, and they are easier to raise before price is settled.
What happens to the lease, the licenses and the supplier contracts?
Why ask it
Many agreements require landlord or counterparty consent to assign, and some simply terminate on a change of control. A landlord who refuses can stall an otherwise agreed sale, so this gets checked early.
What indemnities or escrow will I still be exposed to after closing?
Why ask it
A portion of the price is often held back for a year or more against warranty claims, tax issues or undisclosed liabilities. Ask about typical holdback size, duration and the cap on your liability.
What are the most common reasons deals like mine fall apart late?
Why ask it
Financing falling through, a diligence surprise, a landlord refusing consent, or trading dipping during the process are the recurring ones. The list tells you which risks you can reduce yourself.
If we do not get an offer I would accept, what then?
Why ask it
You want to know the plan for withdrawing, waiting or restructuring, and whether a business that sat on the market unsold becomes harder to sell later. It also reveals whether your adviser has thought past the listing.
Working through the process
Practical guidance for the conversation itself
Preparing before you go to market
Clean the financials first
Separate personal spending from company accounts, reconcile the books, and get several years of statements consistent with the tax returns. Buyers discount what they cannot verify, and inconsistencies read as risk rather than sloppiness.
Reduce dependence on yourself
Write down how the work gets done, move key relationships to other staff, and make sure the business runs for two weeks without you. This changes both the price and the length of transition a buyer will demand.
Assemble the document package early
Financials, tax returns, lease, customer and supplier contracts, employee terms, licenses, equipment schedules and any litigation history. Having it ready shortens diligence and keeps momentum.
Model the after-tax number before you negotiate
Ask your accountant to run the structures a buyer is likely to propose. Owners who only learn the tax consequences at the offer stage sometimes discover a lower gross price would have paid them more.
Keeping it quiet
- 1Agree who inside the business knows, and at what stage each additional person is told.
- 2Use a blind description in any listing, and require a signed non-disclosure agreement before releasing detail.
- 3Stage disclosure: summary financials first, customer names and staff details only late in the process.
- 4Hold buyer visits outside trading hours, or explain them in a way that does not invite speculation.
- 5Prepare what you will say if a customer, supplier or employee asks directly.
- 6Tell key staff before closing rather than after, on a timetable you have chosen.
Where sales go wrong
Taking your eye off trading
Revenue that sags during a months-long process gives the buyer a reason to renegotiate. Running the business well through diligence protects the price more than any negotiation tactic.
Chasing the highest headline number
An offer weighted toward earnout and seller financing can pay less than a lower all-cash offer. Compare deals on what actually reaches your account and when.
Hiding a problem
Concentration, a lapsed license, a customer about to leave: all of it surfaces in diligence, and it destroys trust more than the fact itself. Disclose early and price it in.
Signing a broad non-compete without thought
It can bar you from consulting, advising or starting anything adjacent for years. The scope is negotiable while the buyer still wants the deal.