If you are entering the business-for-sale marketplace, then you may have already come across the phenomena that happens when some small, usually family or individually owned business go up for sale. The prices can seem high, even ridiculous in some cases.
Why are they priced so high?
The owners of these businesses are setting a listing price based on their emotional attachment to the business instead of pricing it to sell. In the business market, there are brokers who will tell an owner what they want to hear, allowing a crazy initial listing price just so they can get the listing.
This is a major disservice to the seller and to any potential buyers who have an interest in the business. By allowing an owner to think they will be able to get whatever amount they want, these brokers shut down any real chance of negotiating for a fair price before negotiations can even begin.
The harsh reality of the business marketplace is that a business is only worth what someone is willing to pay for it. While the tug of war between heartstrings and financial reality is the subject for another article entirely (one for those emotionally-attached business owners), as a buyer you need to tread this path carefully.
First, you are not dealing with a large corporation with a dozen board members, you are probably dealing with one person, a person so personally invested in this business that one wrong move from you can become a deal-killing offense. If you understand this personal investment, and then act accordingly, you will have a far greater chance of getting a deal done.
Should you pay them whatever price they are asking for? Certainly not, but the super-low-ball offer, just to kick a tire and see how low a seller is willing to go is a big mistake.
A low-ball offer tells a seller that you have no regard for all of the time, energy and money they have invested in their business. Anyone (including you) would be offended by such a move. Once a seller is offended, there is usually little chance of getting them to cooperate and agree to work with you on a deal, no matter how much you want the business or how much you are willing to pay.
With that said, use the advice of your business broker when putting together those crucial first offers. You want to open negotiations at a reasonable point. When you start at a fair number, you are saying a great deal about yourself as a buyer – letting the seller know you will treat their business and the deal you are about to negotiate with respect.
Are you a buyer who has questions about what a good initial offer should look like? Would you like to know more about how to negotiate with sellers? Ask us! Please feel free to leave us a question (or comment) here, and we will be happy to get you an answer.