by Richard Parker
Regardless of the economy, the business for sale marketplace is still flooded with buyers. One of the points I have been preaching for years is that serious prospective buyers have to separate themselves immediately from all of the lookers when they contact sellers or brokers.
I received an email inquiry this week about a business for sale that I am representing. The buyer’s email simply stated: “Please send me the company’s recent financials”. It reminded me how many uneducated and poorly prepared buyers there are out there. This lack of knowledge, and moreover, most buyer’s unwillingness to acknowledge it, has been one of the most frustrating challenges I have faced in my career. It never ceases to amaze me that people can be so illogical to believe they’re going to successfully navigate their way through the business buying process and make all of the key decisions along the way, even if they have never done so before.
Although my company sells an incredible amount of guides on buying a business, there are times when I have been tempted to post some “in-your-face” copy on our website and tell buyers: “You are completely out of your mind if you think you’re going to buy a good business and negotiate a great deal without the right information and advice.” Maybe I should test it?
Anyways, let me get back to the email inquiry. My first reaction was to think “here is someone who has absolutely no experience buying a business.” If you are a prospective buyer, think about how such an inquiry is taken by the seller or their representative? If you were in their shoes, would your first action be to hand out your financials to anyone who sent you an inquiry? Of course not!
Whenever I get an inquiry from a buyer complaining about sellers or brokers not responding to them, I always ask what question they submitted on their first inquiry. In the majority of cases, the buyer requested detailed information (i.e. the financials, business address, how long on the market, etc.) and while these are valid requests, the timing is off. Moreover, most sellers or brokers will react as I did, and label you an amateur or more likely as someone who has no clue what they are doing.
Naturally, I emailed the buyer and informed them of the proper steps to take and we got right back on track. But if you make this same mistake to a seller or broker who is getting a lot of inquiries, it is possible you will never get a reply.
So lesson number one when you first contact the seller, is to simply note: “I am interested in this business. Please send me the necessary non disclosure and any additional documents to complete so we can discuss it further”. That is all you should be requesting.
If you have never signed an NDA , they are generally fairly standard but certainly feel free to have your attorney read it. Also, get familiar with the contents of these documents, and learn what the various clauses mean, so you can quickly review them in the future and not be forced with having to pay your attorney to look at each one.
A few of the key elements of any Non-Disclosure will be:
Identifying the business either by description or listing number.
A stated term for the Agreement (usually 2-3 years).
An acknowledgment to keep all information confidential.
Your agreement to not circumvent the broker or contact the seller or any of their employees, customers, or suppliers directly.
An agreement to destroy any documents upon request from the seller/broker
The only issue to really look out for is that the form must only cover the specific business or businesses identified on the document. Some forms provide a broad coverage to the broker for their other listings which you should not execute.
When you receive these from brokers, sign and send them back quickly. It demonstrates you are serious.
Next, set up a call with the broker (if one is involved) or the seller directly. Don’t come charging out of the gate like a pit bull. Don’t expect them to disclose reams of confidential information. All you want to do initially is get a good overview of the business to get a sense if you may be interested and to tell them a bit about yourself.
It is normal for the other side to dig into your financial situation. While you do not have to provide great details initially, it is only reasonable that when the time comes that you want to look at the company’s financials; you have to be prepared to provide yours to the other side as well. A refusal for a buyer to provide their financials simply sends out one very clear message to the seller side that you don’t have the money.
Interestingly enough, in the nearly twenty years I have been in this game, I have found that buyers who have the money, are never afraid to show you it is available. Here is a past post you need to read if you have any apprehension about providing your financials (read it here)
I realize that many people may not be in the same financial position they were in the recent past. But if you are spending your time searching for businesses and don’t want to waste it, then make certain you put yourself above the crowd of tire-kickers by being a well-informed, properly prepared and knowledgeable buyer. If you try to fake it, you are only fooling yourself.
Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business. Want to find out more about business buying strategies that really work, then look no further than http://www.diomo.com