Selling a Business: The Buyer’s Perspective
I started out last week’s post with this sentence: “Selling a business ain’t for sissies.”
Well, I can assure you that buying a business requires even MORE intestinal fortitude.
How do I know? ‘Cause I’ve been on that side of the deal, too.
Those of you who’ve been following this blog for any length of time – or who have read any of our story on our website – know that the reasons I started Worldwide Business Brokers were both my experience selling my own business in the late ’90s and my subsequent experience trying to buy another a few years later.
Last week’s post was about the former and was intended to illustrate what some of a seller’s concerns are. This post is about the buying. What kind of experience will the buyer have?
Here’s the experience I had.
When I started looking for a business, I wanted something that was similar in concept to the one I sold. I felt that, if I could find a small one, I could replicate what I’d done with my previous business which I’d grown from a single location to more than 100 in multiple countries in six years.
It was Fall of 2000. There wasn’t much in the way of internet sites offering businesses at that time. Besides, I wanted a small business located near me. As we teach in our course, this suggested that my best source was probably the classified section of the local Font of Knowledge.
And there I found something that I thought might work.
It was a small deal; a little over $750,000. There were three locations, all well-sited but in need of a branding upgrade including consistent design, coloring, layout and uniform standards. And it needed a new name.
The main product line of the business was in high demand, though, and it had international and cross-cultural appeal, both of which were important to me.
So, I called the number.
My Meeting with a Business Broker(?)
It turned out that the business was being represented by a so-called business broker in an area office of what was at the time the largest franchised business broker system in the U.S.
At our first meeting – over coffee at a mid-level beanery – the broker showed up in a convertible Mercedes – top down – wearing an expensive pinstriped suit, an Asshole-Collar shirt with French cuffs, accented by cuff links the size of golf balls. A subtle entrance this was not.
He kept trying to steer me into one or two of his other listings but I knew what I wanted and kept returning the conversation to that business. I, as one would expect from any potential buyer, asked for the financials.
His response was that they will not disclose the numbers until there is a contract in place to buy the business. He advised that the contract should contain a contingency that, if I was not happy with the numbers, I could terminate the contract.
Now, think about that for a moment.
This is like seeing an ad that says, “Eggs for $5!”, going to the grocer’s and asking, not unreasonably, “How many eggs do I get for my five bucks?”, and being told that the only way to know how many eggs you get for your five bucks is to put that five bucks on the table. How can you make an offer for something if you don’t know what that “something” is?
We’ve launched a coaching program specifically tailored to Realtors that want to sell businesses and to novice business brokers.
If you’d like to learn more, email me at jo*@Wo*******************.com
What Buyers Buy
In our course, “Learn How to Value and SUCCESSFULLY Sell Businesses”, we discuss the two primary types of buyers – financial and strategic. As with most buyers looking at businesses valued at less than $1 million, I was a financial buyer. Most financial buyers are buying an income stream and that income stream will likely have a different value for different buyers.
But, like any other thing that you buy in life, you cannot estimate its value to you unless you know what the thing – in this case, the income stream – is.
I tried patiently and repeatedly to explain to our “very experienced” broker that I needed to know the income stream before I could make an offer but he kept refusing to provide the numbers unless I signed a contract to purchase the business – and he kept giving me all sorts of completely ludicrous and inane reasons why I should do this his way.
Tiring of this charade, I eventually told the broker that, unless he produces the numbers, I’m walking; not just away from this particular business, but away from him – and fast! Knowing that a year’s worth of income could be made on this deal and fearing that it was moving rapidly toward the door, he grudgingly agreed to give me the numbers.
Given this guy’s performance to date, I was not very optimistic about what I would receive and, sure enough, when we met two days later, he proved my skepticism was warranted when he pulled out two sheets of paper torn from a yellow pad on which he had hand-written various numbers, one year per sheet, purporting to be the revenue and expense figures for the business I was interested in.
No bookkeeper P&Ls, no balance sheet, no tax returns, no inventory figures, no list of equipment, no history, no nothing! I looked at the broker, put five bucks on the table to pay for the coffee and bid him a fond and long overdue adieu.
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches how to value and sell businesses.
Become a Professional Business Broker…
On my hour drive home and over the next couple of weeks, I continued to be astonished and shocked by the utter lack of professionalism – to say nothing of the lack of consideration for my time and disdain for my intelligence – that this so-called “business broker” showed during this whole process.
And the more I thought about it, the more I thought that, if I could find an honest, ethical, professional business broker that I could partner with, I would start a professional business-brokering business with those characteristics as a foundation and franchise it. And the following January, that’s exactly what I did.
Worldwide Business Brokers was born.
There were a couple of very important lessons learned during my unsuccessful attempt to buy that business and they are lessons that we put into practice every day. They are so important that they inform 60% of the content of our course.
First, no matter what you think a professional “look” is, acting like a professional is far more important. You don’t need the flashy car or suit – or even the shirt with the different colored collar. Understated professionalism is generally better received – by both buyer and seller (and everybody else, for that matter) – than the “look-at-me” look.
Another is that presentation – how a broker presents a business – is critical. Two sheets of paper torn from a yellow pad on which he had hand-written various numbers?? Are you kidding me? What a joke!
When selling a business, brokers have to treat buyers as serious individuals and worthy of respect. No serious buyer would consider hand-written revenue and expense numbers worth the paper they’re scribbled on.
Refusal to disclose the financials was an instant red flag. And then to provide hand-written numbers on a page out of a yellow pad! What??!!?? This screamed “somebody’s hiding something!” I don’t remember what the broker claimed the revenue and net numbers were but my guess is the tax returns would have shown numbers significantly lower. And as you probably know by now, when selling a business, a seller doesn’t get paid for numbers that can’t be proved.
And the most ludicrous of all: make an offer for a business and then we’ll let you see the numbers. Even after 20 years, the audacity – not to mention the idiocy – of that statement still causes me to marvel at how many so-called “business brokers” treat buyers.
The Bottom Line
As an industry, business brokers, not without reason (as clearly illustrated by my experience 20 years ago), have borne a reputation similar to that of used car dealers. (Used business dealers?) But that is the result of so many people being treated as I was.
But there are a lot of professional business brokers out there – ethical, honest, above board – brokers that know that there are TWO parties to any transaction and, when selling a business, BOTH have to be treated fairly and with respect. The guy I was dealing with was not one of those brokers.
If you want to broker businesses, be a professional about it. Know what you’re doing. Learn from people that have done it for a while. Selling a business is professional work requiring a professional approach to do it correctly.
The market for professional, honest business brokers is huge – but not big enough to countenance the likes of the shyster I was dealing with.
By the way… I remember reading some years ago a remark made by a man that invests in startups; that is, he gives people a lot of money to fund their business. His comment, which I paraphrase, was something along the line of, “A man who wears a colored shirt with a different colored collar strikes me as a man that can’t make up his mind.” I seem to recall that he also said this line of thinking informed his investment decisions. Just sayin’…
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.