Selling a Business: Why Deals Don’t Close – Pt 2, The Buyer
24 April 2023: Selling a Business: Why Deals Don’t Close – Pt 2, The Buyer
Last week, in Part 1 of this 3-part series on selling a business, we discussed some of the problems created by sellers that cause deals to collapse. This week our topic is what buyers’ do to queer deals.
In the Main Street market – businesses with valuations roughly between US$250,000 and $1.5 million – we’ve found over the years too many tire-kickers. And it took some time – much of it wasted except for the learning aspect – before we learned how to properly vet buyers to determine if they were “real”; if we felt they were serious about finding a business to buy and had the intestinal fortitude to pull the trigger.
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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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Some buyers like to tell their friends and colleagues – and themselves – that they want to buy a business when, in fact, they’re only marginally interested in owning a business but much more interested in saying they want to own one. This is particularly true if they have limited financial means and really don’t have the horsepower to buy.
In some cases, they don’t have the decision-making power to pull the trigger. This is most often the case if they’re married. Buying a business requires the buy-in of the spouse and, in some cases, the extended family.
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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Without a serious dedication to this task, the financial resources necessary to go the distance and a full familial endorsement, buyers can eventually come to the conclusion that they really don’t have the wherewithal to continue.
But even those that do possess these basic ingredients and characteristics, navigating the complexities of buying – the complicated aspects of due diligence, the sometimes tortuous path to financing, the need for professional talent, etc. – can, once realized, result in buyers folding up their proverbial tent and walking away.
Price is often another issue.
When selling a business, if a seller has their business valued by a knowledgeable broker or business valuation expert, it will be nearly impossible for a buyer – or anyone for that matter – to argue about the business’ value. But that doesn’t stop buyers from saying, “I don’t want to pay that much.”
When we do a valuation, we use that report as the basis of the price-justification section of the marketing package that we create for the business. In more than 20 years of doing this, our valuations have never been challenged. That doesn’t mean we’ve not heard the “I don’t want to pay that much” excuse. When this happens, buyers are essentially saying they don’t want to pay market price.
(The Brokers Roundtable℠, an online community created and hosted by Worldwide Business Brokers, has a live discussing with Roland Davis, of Davis Business Appraisers, scheduled for sometime in June or July. At the conclusion of that discussion there will be a Q&A during which attendees can get their valuation questions answered by a pro. But you’ve got to be a member to attend. You can sign up for The Brokers Roundtable℠ here.)
A third buyer issue is time.
Many first-time buyers have no idea what it takes to run a business successfully. Once they find out the amount of work that will be required to make the business successful, we often see a sudden evaporation of motivation.
And remember the spouse. If he or she learns that their spouse will be spending 60-80 a week running the business – to say NOthing of weekend and evening calls and texts – the stop sign will come out quickly, immediately derailing the deal.
More Issues
Professional business brokers realize that this is part of the game.
One of my favorite expressions – which, unfortunately, I don’t know to whom to give attribution – is, “If it was easy, EVERYbody’d be doing it.” This is true of business ownership as it is of anything else.
But professional business brokers know how to vet buyers, financially and operationally. We know how to determine who the real decision-makers are and that we have to get them all in the room together to make sure they realize what buying and owning a business entails and to make sure that everybody that needs to “buy in” does so before much time is wasted.
The Bottom Line
Buyers can throw up as many roadblocks to deal success as sellers. And though the sellers – our clients – will have wasted some time with unqualified or powerless buyers, the party with the most wasted time and money is ultimately the broker.
When selling a business, you’ve got to know your buyer. Are they experienced with owning a business? Have they done any research on what buying and owning a business entails? Do they have the financial horsepower to pull the trigger? Do they have the mindset, mentality and background to run the business successfully? (This last if of great importance if our client, the seller, is going to be providing any financing.)
Know your buyer. Know him or her as intimately as possible before spending any serious amount of time on them or providing epic data-dumps. Make sure you’re not wasting your time.
Next week, in Part 2 of this series, we’ll look at the problems buyers bring to the deal.
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…
We’ve been contacted by a U.S.-based PEG looking for opportunities in wraehousing/distribution, small manufacturing, construction and oil/gas with minimum of $900,000 EBITDA anywhere in the United States.
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