I once was selling a small landscaping business. The business had about $500,000 in revenues and a small amount of equipment. They did landscape maintenance in several high-income suburbs. We had an interested buyer who owned a landscaping business with about $2,000,000 in revenues. Over the course of two months, the potential buyer asked about everything you could about the business he planned to buy. What he didn’t do was present an offer. One day, another buyer, who owned a landscape supply company, and his son, who was experienced and educated in the business, presented an offer, negotiated the details, and signed an agreement to buy the business. They closed on the business sale a few months later.
In another sale, a private equity group went from signing an NDA, to a conference call the sellers, a visit to the business, negotiating a deal, and signing a letter of intent in a week and a half. Several months later, they bought the business at the agreed price.
In one week, an individual buyer investigated a bowling alley with real estate for sale and signed a deal to buy it. The buyer closed on the sale a few months later.
The lesson of these stories is that it doesn’t have to take weeks and weeks to buy a business. In fact, it probably hurts the buyer’s chances of buying a business to take a long time to present, negotiate, and sign an offer. Why is that?
The first problem is that taking a long time to present an offer just gives other buyers time to prepare and present an offer. If there are other buyers ready to present an offer, the business broker will give them the opportunity to do so. Now, you are competing with more buyers.
Another problem when you take a long time to evaluate the business and present an offer is that you give the seller the impression that it will take a long time to close a deal with you. Getting a deal closed quickly is a goal for most business sellers. They don’t want to have their business off the market for a long time with a buyer who could back out of the deal.
There are many different types of buyers. The type we fear the most is the “analyst”. These are people who ask for an endless amount of information about the business before they visit the business, meet with the owner, and present an offer. The time for due diligence is after a deal is in place. Otherwise, we can waste a lot of time with a buyer who presents a low offer or no offer. We – business brokers – find that most of these analysts are just that – analysts and not buyers. They analyze until they find a reason not to buy the business – something that you can do with any business if you look long enough.
The most successful buyers, who move quickly and buy a business, have a few things in common. They typically are from the industry or have become very knowledgeable about the industry and type of business they are buying. By doing so, they can move more quickly than someone who doesn’t have that background or knowledge. They can decide quickly whether or not the business for sale is one they want to buy. If it is, presenting a good offer quickly doesn’t give other buyers time to present competing offers. It also convinces the seller that they are dealing with a decisive buyer who will close on the business sale quickly.