Selling a Business: Know Your Buyer
22 August 2022: Selling a Business: Know Your Buyer
Our course, Learn How to Value and SUCCESSFULLY Sell Businesses, explains the need to identify who your buyers are likely to be. Identifying your buyers – describing who they are and how to find them – will help you narrow the “field of fire” when you start your marketing. It allows you to take a rifle rather than shot gun approach to the marketing of that business.
But for the purposes of this post when we say “know your buyer”, we’re referring to the importance of knowing who – specifically – you’re dealing with when you’re working with a potential buyer. Because if you’re not dealing with the right person, you’re very likely wasting your time.
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We offer a comprehensive coaching program – both group coaching in our Brokers’ Roundtable community as well as one-on-one coaching – tailored to Realtors, business owners , buyers and anyone interested in valuing, buying or selling a business.
If you’d like to learn more, email me at jo*@Wo*******************.com
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Not knowing who your buyer actually is can set you up for some rude surprises and significantly alter the entire selling process.
Strategic Buyers
This is particularly true when working with a potential strategic partner.
When someone shows up and says they represent such-and-such a business and they are interested in exploring the possibility of acquiring your company (or the company you’re representing as a broker), it tends to get the juices flowing. Owners envision a major payday. (Brokers envision a successful sale.)
You tend to want to “get this ball rolling” and see what kind of deal you can make. But is the person that approached you the right guy to be talking to? Is he or the company he represents legit?
Maybe. But maybe not.
In the race to get to the finish line, all sorts of important issues could be glossed over to the seller’s detriment. Crazy things can happen and what at first looked like a promising deal, can blow up in an instant.
Concern #1
What if the person that calls, even though they’re part of the business they claim to be representing, has no authority to make a deal?
Negotiations, due diligence and more negotiations take weeks in the best of cases – and very often months. You could be spending an awful lot of time with this potential buyer – and disclosing an awful lot of information – only to find out that the acquisition price you’ve been discussing has not even been communicated to the real decision-makers!
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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Don’t Miss Out on the Coming “Silver Tsunami“!
Who are the principals of the business that is supposedly considering this acquisition? Is there more than one decision maker? Is the person your dealing with even one of them?
Have you seen any documentation indicating the person you’re dealing with can pull the trigger?
When you’re selling a business, it’s neither unmannerly nor boorish to want to know what the structure of the acquiring business is; who the decision-makers are and what the decision-making process is before you lay out your proverbial laundry and stand naked in front of the world. Because once you’ve done that, you’ve lost pretty much all leverage and the other side is calling the shots.
You have to know how to balance your desire to get the deal done with the caution necessary to protect your business.
Control the Data Flow
In almost any acquisition, one of the most important issues for a buyer is the customer list. But the customer list is one of the most important and heavily-guarded assets of the seller. The buyer needs to see it but you don’t want to disclose this until you know that you’re dealing with the decision-maker and that the main points of the deal are pretty much hammered out.
If the buyer asks for this information prior to you know you have a deal, one way to cover both the buyer’s and seller’s concerns is to code the customer list. You can identify the customers by number or letter or some other code name. You can give a complete history of every customer without identifying any of them. Yes, the buyer will, at some point, want to speak with many – or all – of them but until you know that the funding is in place, the due diligence has been, for all intents and purposes, completed and you’re working with the actual buyer, not just a manager or even a C-level scout, you just can’t risk laying your most important assets on the table.
It is not unheard of that competitors will purport to be buyers when what they’re really after is competitive intelligence. They want to learn what you’re doing right; who you’re selling to; what your cost and price structures are; what you’re paying your employees (perhaps in the hope of stealing the best ones); what your marketing plans are. We’ve done a couple of posts on unethical sellers but there are also unethical buyers/competitors.
Even if you’re working with a legitimate buyer – even a competitor – deals collapse all the time. You want to be careful with how you disclose your company’s vital data because, if the deal does collapse, that data, in the hands of a competitor, can – and will – be used against you competitively.
The Bottom Line
Selling a business is an undertaking that is full of potential pitfalls and stumbling blocks. If you’re working with anyone other than the ultimate decision maker, you run the risk of the deal cratering without knowing exactly why and without the opportunity to see if the two “principals” – the actual seller and your counterpart, the actual buyer – could sit down and figure a way to overcome whatever problem or disagreement is holding up the show. Because if you want the deal and the other side wants the deal, a solution can be found.
But unless you’re dealing with your equal on the other side of the table, you’ll never have that opportunity. And if there’s push back from the other side about putting the two principals together, either the people you’ve been talking with are blowing smoke or there’s really no serious interest from the people that actually count.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at jo*@Wo*******************.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
Searching For…
A middle America-based investment company has contacted us about acquiring general dental practices and related businesses – such as oral surgeries and associated labs – in Indiana, Kentucky, Tennessee and Mississippi.
If any of you know of something that might fit, please let me know.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 500 in the world. He can be reached at jo*@Wo*******************.com