Q1: What is a phased screening process?

A phased screening process means that we prescreen the buyer in phases or stages because most buyers will refuse to be thoroughly screened at the initial stages ― particularly before they have seen information on the business and decided they would like to take a deeper look at the business.

If you ask a buyer for a financial statement, credit report, bank statements, tax returns and other documents early in the process, most will refuse. The solution is to ask the buyer for these and other qualifying information in stages as the buyer progresses through the steps in buying your business.

If you are married, did you show up to the first date with your spouse with a 20-page questionnaire along with a detailed checklist of documents, psychological assessments and other requirements for your potential mate to complete? While some of you may have done this, we doubt the majority of you have. In reality, the process of dating, engagement and getting married is analogous to selling or buying a business. It starts with a mutual exchange of information and gradually over time more sensitive information is released.

“Ask the buyer this ONE question as early in the process as possible: “How much liquid cash do you currently have to invest in a business?”

When selling a business, the process looks like this: 

  1. The buyer inquires about the business.
  2. The buyer signs a non-disclosure agreement (NDA) , in which we include two critical questions:
    1. How much liquid cash do you currently have to invest?
    2. What is your net worth?
  3. The seller approves the buyer’s NDA.
  4. We email the buyer the ‘Business Summary,’ which contains essential information about the business.
  5. The buyer reviews the ‘Business Summary.’
  6. The buyer requests additional documents, such as financial statements , on the business.
  7. The buyer completes our ‘Buyer Package,’ which is a 5- to 10-page document that includes essential information regarding the buyer, the buyer’s personal financial statements, and buyer’s disclosure statement .
  8. The seller reviews the ‘Buyer Package.’ If approved, we release additional information to the buyer.
  9. The buyer reviews the additional information and sometimes requests additional details on the business.
  10. The seller requests additional qualifying information from the buyer before releasing additional information.
  11. The buyer makes an offer or submits a Letter of Intent (LOI).
  12. The seller reviews the offer and requests additional qualifying information, such as bank statements, credit report, etc. from the buyer.
  13. The seller reviews the buyer’s information and accepts, rejects, or counters the offer.
  14. If the offer is accepted, due diligence begins and a further mutual exchange of information ensues. For example, the seller may perform a background check on the buyer, hire a professional to investigate the buyer (if the seller is carrying a note), require the buyer to obtain life insurance (sometimes required if the seller or bank is carrying a note).

The key to the process is prioritization and balance. Questions need to be prioritized. Focus on the questions that really matter early in the process. Through our years of experimentation and experience, we have developed a balance that works for us.

“Screening buyers in phases or stages will help ensure you deal only with qualified, serious buyers.”

Focusing on the questions that matter early in the process allows us to create a balance between screening the buyers and receiving maximum exposure for your business.

 Q2: I would like to screen the buyer a bit more in the early stages. Are there any options for doing this?

Yes. We suggest creating a condensed and a detailed version of your selling memorandum or ‘Business Summary.’ The condensed version can be initially shared and if buyers would like to see the detailed version, then ask the buyer to complete the ‘Buyer Package.’ Once you’ve approved the ‘Buyer Package,’ you may release the detailed version.
Jacob Orosz, Morgan & Westfield