If you spend any time at all looking at businesses for sale, I guarantee you will run across a broker or seller (or several) who will only release financials on a business after you submit, and the seller accepts your offer. Talk about craziness!
Can you imagine trying to buy a house and the realtor tells you that they will only allow you to look inside the house after there is an agreed upon offer in place?
Would you buy a used car without looking at the car’s history?
Why on Earth would a business seller expect you to make an offer without a proper initial analysis of the numbers?
Do I agree? No.
Is there maybe some logic behind this strategy? Perhaps.
Here is the issue: the market is absolutely swamped with people looking to buy a business. Most will never buy one. Conversely, less than one third of all businesses listed for sale will ever be sold. The majority of the rest are complete garbage.
What a messed up industry!
Yet, brokers and sellers are faced with a barrage of unqualified buyers so can anyone really expect them to release their confidential financials indiscriminately? On that point, I do not blame them, but the fact is they would be far better served to properly qualify the buyer from a standpoint of whether or not the buyer has the brains, fortitude and resources to close the deal. For those that do, let them properly analyze the business. In cases where prospective buyers do not meet the criteria, tell them so and let everyone move on.
The fact is that
Far too often the actual numbers are not close to what was represented in the seller’s ad (or the “Propaganda” as I like to call it) but that is a whole other story for a future discussion.
I have purchased eleven businesses and when I analyze one, I get to the numbers quickly. If a broker/seller ever gives me the pitch about “offer first – numbers next”, I either walk, or if I am absolutely intrigued by the business model, I play their game. I submit a full price and terms non-binding Letter of Intent, get access to the figures, and then, I revise my offer.
There is a lesson here for buyers, brokers and sellers:
If all the parties follow these guidelines, then qualified buyers and motivated sellers can move forward towards getting a deal done. Moreover, I guarantee that by following this protocol, the pathetic statistic that only a third of all businesses listed for sale ever getting sold would increase exponentially to a very respectable ratio.
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