A Seller's Market Attracts Bad Buyers

Updated: Nov 24, 2021

Imagine if you built a house with your bare hands and kept improving the home little by little over many years. Decades later, the house transforms into a dream home for you and your family. Now, what if a person wanted to buy that dream home and instead of offering you money upfront, they offered to share the house with you and your family so that they can pay you as little as possible each year while still benefiting from living in the luxurious house you have built. Deal terms like this sound crazy right? Wrong! Business owners are being offered terrible terms from bad buyers who are looking to buy great companies for nothing.

Each day, my partners and I speak to business owners from across the United States that represent several different industries. Often, we hear about buyers making an offer with very little to no money down. Some of these buyers expect to fund the entire purchase price using the company’s own earnings. Many of the owners we speak to have sacrificed 20+ years building a healthy bottom line. When an owner is looking for an immediate exit without truly understanding their value and not knowing how to find a group of qualified buyers willing to compete for their business, sharing earnings with a buyer seems like their only way out. The most frustrating part is that this happens frequently, and many owners do not know their options.

If you are a business owner looking to exit in the next few years, it is so important that you understand which advisor is best equipped to help you. Usually, the bigger the company, the more complex and expensive it becomes. This also means that the number of buyers who have the actual dry powder necessary to purchase your business, significantly decreases. A typical business broker will usually slap a business for sale on a website and wait for the buyers to call. Most of these buyers are local, looking for a lifestyle business, or do not have the cash needed to pay for the company or borrow from a lender. These lifestyle buyers are usually looking to use an SBA loan or trying to find an uninformed seller who will finance most or all of the purchase price. Sometimes, a company is a Ferrari, but the owner hired a Honda salesperson to do the job. There's nothing wrong with a Honda and they are known for making good quality vehicles. That being said, it’s still not a Ferrari. The buyers are different, the budget is different, and the deal structure and lenders are also different. Unfortunately, seeking help to sell a company is not as transparent or organized as the automobile market. When your company is a Ferrari, you want to hire the right salesperson. For larger and more complex companies, it’s best to hire an experienced M&A advisor. Finding buyers is usually an easy task for an intermediary. The hard part is finding the right pool of buyers who are financially qualified to compete and bid for your company and then negotiate the structure of the deal so that it aligns with your goals. Once you get through that process, an experienced advisor must then ensure that the deal closes. They make sure the owner keeps their foot on the gas so that the company runs on all cylinders as a deal crosses the finish line. An experienced M&A advisor knows that the best offer will typically come from a company or financial firm the seller has never heard of and it’s usually located in a place the seller has never been. The reason there are thousands of business brokers to choose from and not experienced M&A advisors is because being an M&A advisor takes a ton of effort. Rather than collecting listings and throwing them on the internet, a good M&A advisor establishes a network of buyers and lenders over many years of closing deals. They understand the selling process through a buyer’s lens and prepares the company for market by conducting a thorough due diligence process before the company is ever marketed to potential buyers. This saves the seller, the advisor, and the buyer a ton of time when all parties are ready to make a deal. Choosing the right advisor that can gather the right buyers can be the difference between the retirement of your dreams or the transaction from your nightmares. Do not give your company away to someone who doesn’t deserve it. With patience, planning, and the right guidance, a fulfilling life beyond your business is possible.

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