I had a huge argument with a business broker and seller recently regarding a business where I am representing the buyer and their insane demands regarding the limited amount of time they wanted to give the buyer to do their formalized due diligence.
These two geniuses wanted to restrict the buyer’s review for a business with over three million dollars in sales, more than 65,000 client transactions per year and three separate locations to five calendar days.
The thought of buying a business and investing what is for most people their life’s savings to do so can obviously be a very scary thought. It is so important for a seller to keep this in mind when dealing with individual prospective buyers.
A major concern all buyers have is whether or not the business they are considering purchasing is right for them. More specifically, they need to know if the business will continue to run well after they take over. The majority of businesses that are sold are to people who have no experience in that particular industry so not only do they have to be educated and well-trained post sale, there are countless unknowns they have to deal with BEFORE they make the decision to purchase it.
I have found that almost all sellers, and generally most buyers, are completely clueless when it comes to valuations. Sellers typically put a price of what they think their business is “worth” which rarely has anything to do with the actual “value”. Buyers get unduly and wrongly influenced by multiples, comparables or lack of assets and wrongly overlook weighing the fundamentals of a business into their valuation. It is NOT just about the numbers!
I grew up with a guy who has become very successful financially. He was a bit a pain in the butt as a kid and still has that reputation. Personally, I have always enjoyed speaking with him because he has some very interesting stories and one cannot argue with his business success.
Over the years he has asked for my input on a number of business issues but he always does so in a way of: let me ask your opinion but I’m going to do it my way regardless. He is by no means a genius and frankly, there have ben times when I have questioned his core business intelligence altogether.
I was interviewed last week by Kerry Salls who has a radio program called “Exit This Way”. It is geared for business owners and provides a wealth of helpful information. Kerry runs a very interesting company – This Way Out Group (thiswayoutgroup.com) that provides exit planning to business owners. This is not a new industry by any means however Kerry’s take is that “it is never too early or too late to plan your exit”. It is a superb credo and one I have in different words, been preaching to business owners for decades. She has a wonderful platform for business owners and from what I have read, she has been a huge help to many people.
There are three types of people, or rather attitudes amongst prospective business buyers.
THE LOOKERS: These are the folks who spend countless hours searching business for sale listings, they may even contact some sellers or brokers, but in the end, they are very much just putting their toe in the water. Generally, their approach is that if they happen to find a great opportunity, they may consider diving in just a bit deeper. This group is also comprised of people who are either dissatisfied at work or may be unemployed, but in reality, they are simply looking in between jobs. The people in this group do not buy businesses. Sure they may look for a while but in the end, they either stick with their job or find another one. Hopefully, you do not fit into this category.
No matter how inexperienced or even gullible a prospective business buyer may be, no owner or broker will ever convince someone to buy a particular business; so don’t even try. Buyers need to sell themselves! This can only be done when the buyer builds up enough confidence and trust in the business’ past and feels strongly they can take it over and succeed.
Richard Parker is the founder of Diomo Corporation - The Business Buyer Resource Center™ and author of the How To Buy A Good Business At A Great Price© series.
He has been featured in The New York Times, Entrepreneur Magazine, The Street.com and was a recent Inc. Magazine Entrepreneur of the Year nominee.
Richard has personally purchased eleven businesses during his career and built several others from start up. The information in his programs are based on real-life, hands-on experiences.
For more than twenty years, business buyers and sellers have used Richard's materials and consulting services to buy and sell all types of businesses.
“If your dream is to take control of your future by owning your own business, there's a great shortcut - buy a business that's already up and running. Buying a business can accelerate your path to financial independence and eliminate many of the risks of a start-up. The rewards can be immense - but you have to do your homework. And with Richard Parker's How To Buy A Good Business At A Great Price as your guide, you'll be about ten times more likely to succeed!”
– Donald J. Trump
