It is absolutely shocking how many businesses end up on the market with a ridiculously high valuation and an outrageous asking price.

Why does this happen? When a seller is allowed to decide on an asking price, the value they place on their own business usually has little to do with what the business is actually worth to a buyer and more to do with how much money they feel they have invested, how much they think they’ll need for retirement, etc.

Many business brokers allow their clients to set the listing price simply because they want the listing, not because it is what is in the best interest of the seller. Some sellers and brokers alike also set an asking price high because they want to use it as the high end of a negotiation scheme. What this does in reality is drive away buyers and stick the business in listing purgatory.

As a buyer you are likely going to deal with listing prices that are way too high, but the solution is not to send in a low-ball offer and hope it sticks. That is the last thing you should do because it will almost always severely offend a seller to the point that they will refuse to work with you. On the other hand, you are not willing to overpay for a business, so what should you do?

The answer is initially ignore the asking price, as long as it is generally in the ballpark of what you are looking to spend. For instance, if you are only willing to invest $50,000 in the purchase of a business, you should probably not consider businesses listed for $300,000. If you initially ignore the listing price, you will give yourself a chance to determine what the business is worth to you.

How do you determine what you should offer? First and foremost, use your business broker for help. They know what comparable businesses have sold for, what the local competition means in terms of price and what the industry trends are. You will also need to look at the business and its numbers to see if fits with what you are looking for. Whatever you offer will need to be backed up with why you think that price is appropriate, so consider all aspects before deciding on an offer.

Also, the better the relationship you have with a seller, the better your transaction will be, so be sure to give a respectful offer with some real reasoning behind it. Trying to start negotiations by sending in a very low offer is as ridiculous as the seller setting an outrageously high price as a starting point for negotiations. The two sides will be too far apart for any meaningful negotiations to begin.

The moral of the story is that everything in a business transaction is negotiable, so just because a business is listed at a specific price it doesn’t mean that is what it will sell for.

Are you a buyer who can’t seem to find a business with a reasonable listing price? Do you have questions about how to determine what you should offer for a business? Please feel free to leave us a comment or question here, and we will be happy to help you.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Business deals fall apart everyday, and if you are really serious about buying a business, you will have to do your part to keep your deal in motion all the way to the closing table. How does a buyer keep the momentum going?

Here are a few ways:

First and foremost, go into the business buying process with the realistic attitude that a perfect business does not exist. All businesses are going to come with issues, you will just need to decide on a case by case basis what types and sizes of issues you are willing to overlook or deal with.

Another very common issue that arises with buyers? Don’t over-analyze the business. While it is incredibly important to use your due diligence phase to discover any problems with the business (before they become your problems after closing), there is a point where cautiousness turns to an unnecessary analysis of risk. All business dealings come with a certain amount of risk, there will never be a circumstance where you can avoid it all. Be cautious but not crazy.

Another way a buyer can do their part is not to ask for enormous lengths of time to look at the books. A few weeks should be sufficient. It is unreasonable to ask a seller to pull their business off the market for inordinate amounts of time, especially if you then decide not to buy.

Don’t forget about things like leases and licensing. These parts of the business transaction sometimes involve a lot of back and forth with red tape, so make sure you get started on them right away. You don’t want to be without the proper licenses the day you take over the business.

It is not always an issue with the buyer’s side of the deal that can hold up a sale, so don’t be afraid to push the deal forward if you feel that the other side is taking too long to get you information you need. Due diligence is your chance to run through the financials, but you will need to be aware that the seller is trying to run a business while all of this is going on, so keep your time demands realistic.

The buyer side of the deal can slow a sale down just as easily as the seller side can. If you are serious about buying a business, do your part to get to the closing table and you will have a much better chance for a successful transaction.

Are you a buyer who has been a part of deals that have fallen apart? Do you have questions about the best way to get to the closing table? Please feel free to leave us a comment or question here, and we will be happy to help you with the business buying process.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com