Selling a business involves several key aspects to keep in mind. After considering the first steps to start selling a business and drafting the teaser to present the company to investors, the next part of the process needs to be defined.
Once the teaser has sparked an investor's interest, what's the next step?
Once you've caught the attention of one or more investors, the first conversations with them begin. These are also known as early Q&A (early questions and answers) and are meant to confirm mutual interest in moving forward with the transaction.
What is the Q&A stage?
After reviewing all the information condensed in the teaser, investors need additional information to confirm their interest and move forward. With this more detailed data and an in-depth analysis of it, they can put together an initial proposal.
The Q&A or early Q&A (questions and answers) is how that information is provided to the investor, giving them a more complete, accurate, and detailed view of our company. Among the most relevant data for forming a valuation are the business model and the key variables for the industry.
As the name suggests, it is usually structured as an exchange of questions and answers between the potential buyer and the seller. This way, the buyer obtains from the seller the information it considers most relevant, which will allow it to confirm its initial interest and make an offer — a proposal to steer negotiations toward a successful closing.
Types of questions in a Q&A
The type of questions, the priority of each one, and the weight given to the information obtained will depend largely on the investor's motivations for the deal and on its profile.
We won't have the same conversation with a strategic buyer looking to enter a new market through an acquisition as we will with a financial buyer looking to buy the company to increase returns.
In any case, there is a set of topics that usually come up and that are key for the potential buyer to form a complete picture of our business:
- Assets: When buying our company, the investor acquires all of our assets along with it. So, to form an opinion and evaluate our company, they need to know in detail what we own, from machinery, equipment, and real estate to cash on hand, bank balances, and receivables from our customers. And, although it is harder to quantify in monetary terms, they also need to know about the technology, intellectual property, and other intangibles that enable us to carry out our business.
- Human capital (team, workforce): this is about being able to assess the people and the team that make up our company, including their seniority, experience, level of training, how they fit into the organization, types of employment contracts, and so on, since this will be a key element for the buyer once they take over. It can also be a differentiating factor, both for the existing business volume (especially in activities that require specific expertise) and for future growth.
- Customers and target market (revenue concentration): when explaining our revenue, the investor will want to understand our main sources of income: who our largest customers are, what type of customers they are, how we built our customer base, which market segment we target, and how concentrated our sales are. In other words, to what extent we depend on a few key customers to generate most of our revenue or, instead, whether our business model has a highly fragmented customer base.
- Market share and competitors: in today's highly competitive economy, it is very important to understand our company's position in its industry: what percentage of the market we hold and who our main competitors are. It is also worth explaining what sets us apart from them, what our competitive advantages are, how they can be leveraged and developed, and what our outlook is in this area.
- Sales channel: here, questions may focus on understanding in depth how we get our products and services to our existing customers and how we acquire them. The goal is to examine how our company meets consumer needs and how it distributes its output to do so.
- Contingencies: it is also important for the investor to know what events could affect our company in the near future. These are usually reflected on the balance sheet as provisions and, essentially, include any event that could have a significant impact on our business. A good example is an ongoing lawsuit, or a pending major court ruling, that could have significant repercussions for the company.
In addition to these initial questions, it is very important to have a set of documents ready and to gather the most relevant ones, both on the company's assets and liabilities and of a legal nature, for analysis during the stage known as due diligence.
At Deale, we are automating the Q&A process and building it into our platform, so that all these specific procedures and steps, which are often a heavy burden that drags out business sale processes, can be completed easily, much faster, and efficiently thanks to technology.
It is one more innovation through which we aim to make life easier for all the business owners behind the SMEs that make up 99% of our business landscape, in line with our corporate mission.
