Make sure the “buyer” and “offer” are actually the real deal
We are in the middle of a burning hot business-for-sale market right now. We’ve never seen anything like it during the dozen years that we’ve been working with owners on developing and executing their exit plans. Even business owners who were planning to sell internally are now changing their plans and selling externally.
As a business owner, it can be exhilarating to get that phone call – or multiple calls – from purported interested buyers who say: “I want to buy your business!” Too often we’ve seen owners get themselves into trouble following phone calls like this. Not knowing how to handle such inquiries can put you and your business in an extremely vulnerable position. As with any frenzy, it’s easy to get carried away, steamrolled, or worse. You need to make sure you know who and what you’re dealing with.
We want to make sure that you are holding all the cards and are fully informed, so you can get the best price from the right buyer for your business. In this and our next couple of articles, we’ll walk through how to know if an offer and/or buyer are legitimate, the steps you should take when you receive that “offer” phone call, and why being prepared in advance is the best thing you can do to make sure you get what you deserve for your business.
Is It Really an Offer?
First and foremost, owners need to understand whether they have a legitimate offer from an authentic buyer. Especially in a hot market like this, there are unfortunately lots of unscrupulous buyers out there who are “dialing for dollars” and looking to scoop up businesses at bargain basement prices. They will make a decent offer, get you to the table, and come up with a last-minute excuse to discount their offer after you have spent lots of money on fees and mentally committed to selling. Then they move on to their next target. Even worse, we have seen cases, like this one, where someone an owner knows and trusts such as a partner or supplier turns out to be a crooked buyer:
Lessons Learned: How NOT to Sell Your Business
A well-established, 20-year old company that had a strong foothold in its specialty retail space was seeking a new owner. They hired a broker, but did not consult him when this potential buyer came knocking. When he found out, the owners told the broker that this person had been one of their suppliers for years so he knew their business and the industry very well. The advisor was concerned, but the owners assured the advisor that this person was a trusted friend and there was no need to be worried. They had given the potential buyer their tax returns and access to their customer records because they wanted to get the process moving.
It turns out that this “perfect buyer” did not have the financial resources or any genuine interest in acquiring the seller at all. Instead, he stole their customer lists, and told their customers, employees, and suppliers that they were selling their company. And since he was in the industry, he managed to maneuver the exclusive, lucrative product lines away from the owners to his new company. In essence, he stole their company right out from under them, and they willingly helped by feeding him the information he needed.
The sellers allowed themselves to be a target by being eager. They were excited that someone who seemed qualified was so interested in their company.
The main lesson here is that you want to be ready for any offer – no matter who it is and how much you trust them.
Make Sure You’re Prepared for Any Offers
- Most importantly: Do not give them ANY information! And we can’t stress this enough.
- Be prepared with questions for them – you don’t want them to have the upper hand. Here are a few you can start with:
- Are you a broker or buyer or private equity firm?
- Are you shopping on behalf of someone else?
- What type of business are you looking for?
- What size business are you looking for in terms of profits?
- Keep track of who is calling you. It can be helpful to keep a spreadsheet with who they are and the answers to the questions you’ve asked.
- Be sure to talk to your advisors and refer the offering buyer to your advisors for vetting, including signing confidentiality agreements and discussing terms and pricing.
- If they’re crooked, they won’t want to talk to anyone else. In this case, it’s probably best to walk away.
- Had the owners in the above case taken this step, their advisor would’ve quickly realized the buyer wasn’t on the up and up and likely would’ve been able to protect them.
Preparation is the Best Defense and Offense
While “I want to buy your business” is music to any business owner’s ears, you need to make sure that you conduct the proper due diligence on a potential buyer before any information is exchanged.
It’s a sellers’ market and you don’t want to get caught up in the frenzy. You want to have choices and be able to pick the buyer that will best for the company and for you. Don’t get starry eyed only to find that they’re not going to pay you what your business is worth or they plan lay off your employees.
You’ll be sorry if you sell to the wrong party. We’ve seen far too many business owners who don’t follow protocol only to face remorse down the road.
Be prepared for the walk-in offer by getting educated – learn how the deal process works so you can avoid the most common pitfalls and missteps, understand what your business is worth, and manage the emotions that go along with this process. With the right planning and homework, the sellers in the case above could have sold their business to a real buyer and enjoyed their retirement as they had envisioned.
Business Transition Academy has the tools, resources, and guidance you need to get started. Our proven six-step planning process and training programs provide you with the roadmap you need to exit your business on your own terms. Download our FREE book and gain access to more FREE business owner education resources, including:
- Introductory Course – How to Plan a Successful Business Exit
- BTA Owner Readiness Assessment
- Success Stories
- Real-Life Lessons Learned by Owners
We will show you the steps you need to take to plan for a successful business sale or ownership transfer.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice. Information presented is believed to be factual and up-to-date; however, BTA makes no guarantee as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages from its display or use. Any forward-looking statements are believed to be reasonable; however, BTA gives no assurance that such expectations will prove to be correct.
