Insights · Practical guide
The three things every buyer asks in the first ten minutes
Owners expect the first conversation with a buyer to be about the numbers. Sometimes it is. But experienced buyers often ask in a different order: who runs this without you, how concentrated is the funding, and only then what do the accounts say.
Buyers ask in that order because they price risk before they price value, and the risks they cannot see on paper come first.
The call that surprised an owner
Earlier this year I sat in on a first call between the owner of a training provider and an acquisitive group.
The owner had prepared for it the way most do: a clean profit and loss, a bridge to adjusted earnings, a page on the pipeline.
But the buyer's first question was none of those. It was, more or less, "if you were not here on Monday, who would be running this?" The second was, “Which funder or contract paid for most of the learners.” The accounts came up after twenty minutes, and by then the buyer had already formed a view on whether to believe them.
The owner told me afterwards that the call had felt like an interview for a job they had not applied for. That is the right instinct. It was an interview, and the job was to convince a stranger that the business will still be there, and still be funded, after the founder has been paid.
Question one: who runs this without you?
Buyers don’t want to purchase a job. So the first thing they test is founder dependence. They ask who signs off the funding claims, who the employers ring when something goes wrong, who the inspector talked to last time, and who takes the Monday meeting. And they’re listening for names that are not yours.
There is a number hiding inside this question. If the answer is "me", the buyer will price in the cost of replacing you.
And that replacement cost comes off the earnings before any multiple is applied.
On a business making a few hundred thousand pounds, a market salary for a managing director is a large share of the value.
On the other hand, if the Founder is fully extracted from the business, with a competent management team that has a track record of performance, the business is both easier to buy, and worth more.
The move: name your second line a year before you need to, give them decisions to make while you are still there to catch mistakes, and make sure the people a buyer would ring have heard of them.
Question two: how concentrated is the funding?
The second question is the one a buyer cannot fix after completion, which is why it comes before the accounts.
In our sector it takes three forms:
- How much of the income sits with one funder, one contract or one employer?
- Which standards or programmes generate the starts, and are any of them the ones that lost funding for new learners this September?
- And how current is the inspection: when was it, what was the grade, and how long will it carry?
A buyer is building the funder table in their head while you talk:
- Levy versus non-levy.
- Direct contract versus subcontract.
- The top three employers as a share of starts.
The buyer is not asking because they expect a perfect answer. They are asking because the answer tells them what kind of business they are buying and what could go wrong in the first year they own it.
The move: build the funder table yourself, honestly, before anyone asks for it. Know your top five sources of income as percentages, know which standards you depend on and what has happened to their funding, and know your inspection position in one sentence. An owner who can answer this from memory changes the tone of the whole conversation.
Question three: what do the accounts say?
Only now do the numbers come up, and the reason they come last is simple: the buyer has spent the first ten minutes deciding whether to believe them.
If the founder dependency answer was thin and the funding answer was vague, the numbers will be read with suspicion however good they are. If the first two answers were strong, the numbers get the benefit of the doubt.
And for numbers, the buyer doesn’t want a sales deck. They want to know that the management accounts reconcile to the filed accounts, that the add-backs are real and explained once rather than defended repeatedly, and that the year-end does not hide a timing problem between the funding year and the financial year.
I will say this plainly: the businesses that sell well are not the ones with the best numbers. They are the ones whose numbers say the same thing every time you look at them.
The move: reconcile before you go to market, write the add-backs down with their evidence, and make sure the story the accounts tell matches the story you tell.
Why the order matters
Owners prepare for the third question because it is the one they can prepare for at a desk. Buyers ask the first two because those are the ones that lose them money. If you know the order, you can prepare in the order that counts, and the first ten minutes stop being an ambush.
If you would like the first ten minutes to go well, the time to think about them is a year before they happen. Talk to us in confidence.