Dealing with only one buyer for your business is not a good idea in good times. It’s an even riskier idea now. It’s not unusual that a business owner, who is interested in selling their business, to be contacted by a potential buyer. There are many reasons why dealing directly with only one buyer is a bad idea.
You can’t count on one buyer for a number of reasons. Buyers decide not to buy a business for many reasons, including many not related to your business. Their business may be suffering and they decide to focus on that rather than buying another business. Their ability to get financing may go away. Their business situation may change; they may lose a key person; they may be pursuing multiple businesses and decide to buy another one.
Even if the buyer makes an offer, it may not be a good offer. They may make a low offer, or want a lot of seller financing, or make the purchase price dependent on how they do with the business, or other terms that are not acceptable to a business owner. You can’t count on the price and terms that a buyer offers being the final price and terms. It’s a common practice for buyers to put a business under agreement at the asking price. That gets it off the market. Then, the buyer looks for reasons to ask for a price reduction. Having a business under agreement for a while creates deal fatigue and a business owner may accept a lower price rather than go through the process again. Dealing with only one buyer puts that buyer in the driver’s seat. If there are other potential buyers, it lessens the risk. The buyer knows that asking for a price reduction may result in them losing the purchase. If they continue to insist on it, we go to the next buyer.
A common way that business owners deal with one buyer happens when an industry buyer contacts them or the business owner reaches out to industry buyers they know. These are not necessarily good buyers. Owners may think they are because they have bought other businesses in the industry. But doing so doesn’t mean the buyer paid a good price. Some business owners don’t want to put their business on the market for fear that the sale will not be kept confidential. While that is always a risk, with a good business broker, the risk is low. Other business owners deal with an industry buyer because they think they will save the broker’s commission. The difference in prices that buyers are willing to pay is vastly more than the broker’s commission. A few years ago, I put a business on the market. Several industry buyers said they “knew the market” and the market price was between $2 million and $3 million for the business. I sold it for $5 million.
When negotiating a price and other terms of a sale, a business owner can’t just pull numbers out of the air. The best way to negotiate is to have good financial reasons to support the price an owner is asking. Is this an area of expertise that you or your attorney have? Probably not. But, negotiating price and terms is something we business brokers do all the time. Keep in mind that if you are dealing with an industry buyer who has bought other businesses, he is the “expert” and it will be hard for you to disagree with the statements he makes about the price and terms at which deals are done.
As a business broker, If I only had one buyer for a business, I would be disappointed. We usually have many more than that within a few weeks of putting the business on the market. You can’t count on one buyer. A rule of thumb is that you need 10 or 15 buyers to get one competitive offer. The marketing that we do will reach many more buyers. We use a variety of Internet marketing, our buyer database of thousands of buyers, our co-broker group, and reaching out – confidentially – to strategic buyers, to find buyers. By doing so, we reach many more buyers.
If you have a buyer for your business, good. But don’t make the mistake of dealing with only that one buyer. Contact a business broker to reach many more prospective buyers and add that one to the many others interested in buying your business that the business broker will find.