The Business Purchase Process is Not Efficient!

When presenting my businesses for sale to some of my potential business buyers, I can sens some frustration. Buyers expect all information about the businesses for sale to be handed to them by email with no efforts of their own. They also expect to receive a list of businesses with all relevant information so that they can sort the info in an organized table, rank the opportunities and pick up the best ones. I noticed that former corporate employees/executives looking to leave the corporate world and become their own bosses have the highest expectations. These buyers are looking for structure where there is very little structure, the small and medium size business for sale market!

The followings are some of the inefficiencies plaguing the business purchase process and the reasons for these inefficiencies:

  1. Information about the name, location and exact business activity are not provided by email or even over the phone: This is because the sale of a business is confidential, if business employees, customers, suppliers know about the possible sale, the business might suffer and lose some of its value. As a result, business brokers have to qualify potential business buyers and provide specific information only to buyers who are ready, willing and able and only after they have signed a non-disclosure agreement.
  2. To receive additional information, buyers have to drive kilometers for a face to face interview with the business broker: Despite all the technological advances, this face to face interview is still required. While this seems old fashioned, it is still a very good way to test the buyer’s motivation about purchasing a business by asking them to spend time and gas before getting information about the business. Furthermore, it’s difficult to imagine how somebody can buy a business over email or phone. A face to face interview is a unique opportunity for the broker to understand the buyer and build a trust relationship that could eventually lead to a sale.
  3. Financial information are not always available and rarely reflect the profit numbers claimed by the seller: First, financial statements for small to medium size businesses are prepared mostly for tax purposes and are targeted at minimizing the amount of tax to be paid to the government. They are not meant to show the business at it’s best lights. For this reason, financial statements have to be normalized to reflect the real profit of the business. Second, for obvious confidentiality reasons, most business owners are reluctant to show their financial statements to a potential buyer at the first meeting. They want to sens that the buyer is genuinely interested in the business before providing the financials. Some owners would even require a conditional offer on the table before providing these financial statements. Finally, some business owners have simply not taken the time to put their businesses in order and prepare financial statements before putting the business for sale. This doesn’t necessary mean that the business is not a good opportunity.

Purchasing a business requires patience from potential business buyers. It is very noticeable how buyers’ expectations and attitudes improve when they spend time investigating the business for sale market and they become more knowledgeable about the process. Understanding the business purchase process will save potential buyers a lot of wasted time and frustrations and will maximize their chances of purchasing the right business.

How to Deal with Business Brokers

Business brokers specialize in helping business owners sell their businesses. Most business brokers represent the sellers rather than the buyers. As a result, business brokers are responsible for qualifying buyers to weed out “tire kickers” and make sure that only buyers with the motivation and financial resources to purchase a business are presented to sellers. There are two reasons for the need to qualify buyers:

  1. Save the broker’s and sellers’ time. Statistics have shown that only 10% of business buyers actively looking to purchase a business end up buying a business. The other 90% never buy a business in their lives.
  2. Protect the sellers’ confidentiality. The business could be substantially harmed if the word goes out that the business is for sale. Confidential information should only be given to serious buyers to reduce this risk.

What should a business buyer do to be considered a serious buyer?

  1. Spend the necessary time: Buying a business is time and energy consuming. Serious buyers are not afraid to devote their time to research the right business. Business brokers generally require that buyers come to their office for a meeting before providing them with more information. Buyers who negotiate where to meet or require considerable information before meeting are generally considered not very serious about buying a business.
  2. Show proof of available financial resources: Brokers only work with buyers who can demonstrate that they have the financial capabilities to purchase the business or borrow the necessary funds. Buyers should not be offended when asked for proof of financial capabilities.
  3. Show focus and determination: Asking information about too many unrelated businesses is generally interpreted as lack of focus and discourages brokers from working with buyers. Unfocused buyers are very difficult to work with as brokers cannot identify their needs and as a result cannot help them.

Business brokers can be an excellent source for detecting the right business to purchase. Brokers know the market and can help serious buyers locate and purchase profitable businesses that fit well with buyers’ personalities and goals. However, buyers interested in getting the most value from brokers should be ready for purchasing a business and should prove it.

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