Buying a Business – First Mover Advantage

Business buyers generally take a very long period of time to make a decision about making an offer on a business. Most buyers go through an unproductive period of hesitation that makes the decision process even more difficult. Among the common mistakes are:

  • Asking friends and relatives their opinion about buying a particular business. Since 90% of people are not entrepreneurs, 9 out of 10 people will discourage you from buying a business even if it is the best business you can ever buy.
  • Wondering whether starting the same business from scratch is a better move. First, most existing businesses sell for a price lower than the cost of starting the same one from scratch, especially if you take into account the cost of waiting years and years before the business becomes profitable. Second, you will be at a serious disadvantage against competitors and your chances of success are very low unless your have a new idea never tried before. Finally, Most people will do a better job taking over an already existing business and improving it than starting a new one. It take the same level of energy and time to take a business from 0 to $1M in sales than to take it from $1M to $10M in sales. So which scenario do you prefer?
  • Relying on your lawyer and accountant to make the decision to buy the business for you. Accountants and lawyers are valuable professionals that can assist you in making the right decision buy spotting the risks and possible rewards of a business opportunity but they are not business people. If they were, they would not have been professionals. They probably would have been making more money managing their own businesses. These professionals generally advice against buying businesses because it involves risk. It is easier to advice against taking any risk to protect you and themselves from any possible liability.

A long hesitation time ends up costing a lot of money to most business buyers. As a Business Broker in Toronto, I personally witnessed numerous situations when buyers lost their first mover advantage and ended up in a much weaker negotiating position simply because they delayed the decision to buy the business. This generally translated into a higher price paid to the seller. When a business stays longer in the market it generally attracts more than one buyer’s interest. This creates a multiple bidding situation where the price goes up.

Furthermore, business sellers frequently choose the buyer they connect better with and who was able to show motivation by rapidly making a offer on their business. It becomes a matter of pride not reason. Buyers who drag their feet before making an offer end-up generally loosing the bidding war.

Making a decision to buy (or not buy) a business in a reasonable time does provide a first mover advantage and enables a business buyer to pay a more reasonable price and get a better support from the seller. Business buyers should first spend time learning about themselves to know what they are really looking for in a business and lean more about the business purchase process before investigating real business opportunities. They would then be able to make decisions quickly and take advantage of great opportunities in the market.

Published by

Omar Kettani

I am a business broker in Toronto. I am specialized in selling businesses with less than $10 million in value. I have a master of Engineering from a top-notch French Engineering school and an MBA from the prestigious Richard Ivey Business school in the University of Western Ontario where I specialized in entrepreneurial finance. I have a long experience in banking, business ownership, marketing and finance. I dedicate my career to helping small and middle size business owners sell their businesses to the right buyers.

2 thoughts on “Buying a Business – First Mover Advantage”

  1. Very interesseting common mistakes. Be able to make decisions quickly and take advantage of great opportunities in the market is very important.

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