One of the most important services business brokers perform for our clients is screening and qualifying prospective buyers. Unfortunately, many buyers are their own worst enemy when searching and negotiating for a business acquisition.
“My advice to the individual buyer,” says Frank Orlando, an experienced Milwaukee business broker, “is to spend some time developing your search criteria and be realistic and honest with yourself, the brokers you speak with, and the potential sellers you engage.
“For most individual buyers the purchase of a business may be the largest single investment of their lives, in most cases greater than their home or any real estate transaction.
“Even more important,” he says, “this investment is more than likely going to be your primary source of income. That said, you need to understand what your buying power will support. When you’re straight forward with the broker, he can point you to the right deals that fit your investment criteria and your income needs.”
The two biggest mistakes buyers make, in my opinion, are attempting to remain anonymous and being stingy with their financial information. I often receive non-disclosure agreements with only first names, no telephone numbers, and blank financial information.
These buyers may be fully qualified and suited for the business, but they won’t get any further because they were not forthcoming with critical information. This information could tell the broker if the business is right for the buyer, or inform him that it will not meet his buying criteria.
This sounds elementary, but it’s often overlooked until after the buyer has searched for months or years looking at deals they could not realistically complete.
Here are some quick Dos and Don’ts that will make you a more effective buyer:
1. Accurately disclose your financial information, including if possible a financial statement and even a credit report if you are seeking owner financing. Your broker will protect your confidentiality the same as he protects the sellers. It also establishes you as a “real” potential buyer.
2. Clearly indicate the types of businesses you are NOT interested in. It is rare that buyers buy the kind of business they thought they would when they began their search.
3. If you will need SBA financing and have had some prior credit, legal, or other issues such as DUI or bankruptcy, you should first get pre-qualified for SBA financing with an experienced SBA lender. Clearing up these issues can take 9 months or more. No seller is going to wait that long, so take care of these issues before you start your search.
4. Respond and communicate in a timely manner whether you’re working with a broker or a seller, so they know what you’re thinking, and what your concerns are. If you have a problem or a concern, don’t make up your mind without discussing it with your broker.
5. Make an offer on any business you really like, even if your offer is a fraction of the asking price. This may seem odd to you, but it works. Many owners ask unrealistic prices but are willing to take less. You could pass up an opportunity by not making an offer.
6. Network with brokers and let them know your search criteria, and update them regularly as your situation changes.
1. There is a proper place and time to discuss and negotiate price, and it isn’t on your first contact with the broker or the seller. No one can form an intelligent opinion based on listing information.
2. Do not violate confidentiality. This includes talking to the owner in front of his employees, or talking to his competitors, or doing anything else that would reveal to others that the business is for sale.
3. Do not misrepresent or exaggerate your resume, skills, background, or abilities, because most people can see through people who play that game. Don’t tarnish your credibility.
4. Do NOT talk about price and terms with the seller, if you’re working with a broker. Negotiating price and terms with the broker at arm’s length will keep relationships friendly between the buyer and the seller.
5. Don’t do all the talking. Prior to the meeting, create lists of questions that clearly indicate you have read the information that has been provided to you. Read all the information you receive. Asking for an offering memorandum weeks after you first received one indicates you’re really not serious.
6. Don’t attempt to renegotiate price and terms after an agreement is reached, unless you have a valid reason based on your due diligence.
If you need immediate ideas or advice, click to contact me now.