If you seek companies to purchase, beware of business owners who will use you for the sole purpose of determining “what the market will bare” for their companies.
Assuming you have
clearly defined your business purchase criteria and you have decided to pursue purchase of existing companies, either officially “for sale” or not, you need to think about how best to qualify a business owner’s selling intentions as quickly and effectively as possible.
After you have started your program to find companies to purchase you will find that sometimes the line between a company being “for sale” and one that is not blurs very quickly. Often companies that are for sale are listed at unreasonable terms because the business owner is just tying to determine what the market will bare for his company. Likewise, a company that is not for sale, that you approach, may only be interested in determining what the business might be worth. These situations are common to the business buyer and can be very expensive relative to time and money opportunity costs.
Determining whether a business is really for sale can be very challenging and fraught with financial and emotional peril for the business buyer. The time and money that can be invested in a potential “deal” that never was really a deal to be had, because the business owner never could or would make a decision to sell, can be devastating. Although you can chalk the purchase opportunity up as a “learning experience”, you quickly determine that as a business buyer you cannot afford to have this happen again.
As a business buyer you want to use the best means possible to position yourself to get first shot at your most viable acquisition candidates and quickly qualify the sincere intentions of the current business owners.
FOR SALE or NOT FOR SALE, That Is The Question!
An established business that is officially “for sale” requires less effort to find and offers the business buyer more avenues to qualify their owner’s sale intentions. The process of pursuing a business that is for sale is “reactive” in nature versus pursuing a company not for sale is a “proactive” effort requiring aggressive and creative approach tactics. Responding to a business-for-sale listing is much easier than trying whatever creative means you can to get to a qualified business owner who can and will make a sale commitment. It is also fair to conclude that business owners with a “proclaimed” intention to sell are much more cooperative and motivated to “show all their cards” than a business owner with no evident reason or motivation to sell.
Information flow is quicker, is much more straightforward and is supported by more detail from business owners with their companies officially for sale than with owners of non-listed companies. The process of determining if a business owner is sincerely motivated to sell can be fairly simple with the right approach.
How to “Reveal” an Insincere Business Seller
Qualifying a business owner’s sincere intention to sell the company is basically a DIS-qualification process made up of two fundamental steps:
- Securing an “up-front sell commitment”
- Asking a series of practical DIS- qualification questions.
Besides effectively evaluating the viability of the answers rendered to the questions asked, correctly analyzing how they are communicated can be most enlightening to the potential business buyer. The seller’s exhibited level of sincerity, emotion and associated body language during the discussion can be very revealing.
Before we define the questions to be used, be sure to incorporate these fundamentals into your business seller DIS- qualification process:
Secure a face-to-face meeting with ONLY, and ALL the current business owner(s) as early in the business evaluation process as possible Ideally, have this meeting take place in a “neutral” location accommodating friendly, private discussion.
Be sure to bring along other members of your “buyer team” to get second opinion’s and perspective’s on the to-be-had conversation.
Take copious notes on all the questions asked and all answers given.
Start the meeting by securing an “up front sell commitment” from the seller … use these exact words: “We are very serious about the purchase of your company. The purpose of this meeting is to have you help us clearly understand WHY you want to sell your company, and if we can eventually come to mutually agreeable purchase terms, to secure your commitment to sell the company to us. Before we BOTH invest many hours and dollars into this potential transaction, can you now agree to this?”
If you get a “no” or some non-commitment like response, with little valid reason why, you are talking to a business owner who has no compelling reason to sell. There is strong justification that any time and money put into qualifying this investment will be lost to seller indecision and/or lack of straight forward seller communication.
Five “Must” DIS-qualification Questions to Ask
These five questions can give you further insight to justifying your continued pursuit of the company or not, (Remember, “It never hurts to ask“ and a question not asked could cost you dearly later):
- “How long has your business been for sale?”
- “Prior to this, have you attempted to sell the business before?”
- If yes…”Why didn’t it sell?”
- “Have you ever declined any written letter of intent to purchase?”
- If so, “Why?”
Success in purchasing a viable company does not always depend on being in the right place at the right time. It usually depends upon being ready and able to effectively define extraordinary opportunities from those that really are not. Seller assessment is a critical process in the business buyer’s ongoing attempt to reduce their “buyer beware” disadvantage of finding the best acquisition possible.