Buying A Business: How To Beat Your Competition
When you find a business that is listed for sale and you inquire on it, you can bet that there are other buyers who are inquiring and talking with the seller’s broker as well. It’s common for our business owners to receive multiple offers. In the sale of larger businesses, those buyers and investment bankers are familiar with the competition and know how to handle negotiation. Many individual buyers that we deal with are not; which is why it is important to be prepared for the competition when buying a business.
The first thing you should know is obvious but the most imperative point. Do not drop out. If you drop out, you won’t buy the business. Keep in contact with the seller’s broker and be prompt. Competition is inevitable. The more attractive the business is, the more competition. When you are the only buyer, you have more control. The power shifts to the seller when there are multiple bidders. If this is a good business that you would like to buy, learn how to navigate this different terrain.
Here are some tips on how to do so:
Find out the rules of the game. The seller and business broker have a process when looking for a buyer. Is this a formal sale where all “best and final” offers are submitted at the same time? Will an LOI be negotiated with the one, “best” offer? Or, is the seller acting on each offer as it is received and accepting the first offer that is acceptable? Are they negotiating with several buyers who made the best offers? Or, is some other process being used? You need to know as much as you can about the process.
Find out what is important to the seller. Highest price is not the ONLY consideration the seller bases their decision of which offer to accept. Questions like, third party financing? How long the seller will have to stay on after the closing? Speed and certainty of closing? Will the buyer succeed? Keeping the employees? Find out what is important to the seller and create your offer with these in mind.
Stick to the terms of the offer you present. Nothing kills a deal faster than asking for a lower price or other revised terms. Unless you find clear reasons to do so in your due diligence based upon information not previously disclosed, stick to the deal you originally negotiated.
Be genuine and reasonable. In the case of buying a business, the saying “Nice guys finish last” is not accurate. Business owners want to sell their “baby” to someone they like and trust. So, be just that. If there were two buyers with the exact same purchase price, terms, etc., the seller almost 100% of the time will sell to the one they like and who they think are the most authentic. They are also more likely to be helpful to them far beyond the closing to be successful with the business.
Time kills deals. In most deals, speed and certainty of closing is important to a seller. By moving quickly, you demonstrate your motivation and ability to close the deal. Accordingly, have the deadlines in your offer, such as for due diligence or obtaining financing; be as short as you can work with. The best way to move quickly is to be prepared by the time you make the offer. Line up your attorney and accountant. Know the financing sources you will go to. Have other needed services lined up and move expeditiously.
In conclusion, know that there WILL be competition for businesses that you inquire on so BE prepared for it. Act aggressively towards it and have the mindset that YOU are the best buyer for the particular business and show the seller and broker that.