I recently finished my assignment with a buyer; let’s call him Mike, who contacted me after losing a good internet business that he liked to another buyer. He said this internet business was selling product line that he and his wife liked and it had all characteristics of good business they were looking for. He was upset when he learned that business was sold at a price that he was willing to pay but was lower than what seller’s asking price . When I asked Mike why he did not offer the seller what he was willing to pay and his answer was he simply thought he wasn’t sure seller would accept his offer and it may offend him. I have experienced buyer reluctance to extending an offer of what buyer considers a fair offer price numerous times and hence the topic of my blog today.
The assumption that the seller will be offended and refuse to deal further–that was the erroneous idea in Mike’s mind–is just one of the reasons that the majority of prospective buyers of businesses never get around to making offers on businesses, even web businesses that interest them and meet their criteria.
In fact, SBA indicates that 80% of people who say they want to buy a business never actually complete a deal. Most of those don’t even “pull the trigger” on a business they’ve been investigating.
And the fact that sellers and their brokers spend most of their time with people who are not serious, provide an answer for one of the biggest complaint of this industry that sellers are in no hurry to supply information requested by buyer prospects.
How to get sellers attention?
If a business interests you, if you can see yourself as the owner of the internet company you’ve been looking at, the next step is to submit a Letter Of Intent (LOI).
Buyers who sign an LOI and show preparedness to write a deposit check set themselves apart, immediately, as “real” buyers. By stating your intent to buy a company according to certain offer price, even if your offer doesn’t match those requested by the seller, you grab seller’s attention above the crowd.
Submitting an LOI shows you are serious. And it means you’ll be taken seriously in the marketplace of Internet businesses for Sale.
So, how to actually do it
Reviewing the details of a business for sale listing is helpful, as it informs buyer prospects about what the seller has stated regarding what he or she wants in a deal. But that’s all. Is the seller more interested in total selling price or cash up front? Is there flexibility regarding seller financing? A buyer prospect can speculate about these matters but a good thing to do is to begin discussing it with the business broker. But even a better way to begin discussing this is first to request a meeting with seller. Lots of buyers we work with are reluctant to speak with sellers fearing they will be obligated to put an offer. Meeting with Seller can be just to discuss various aspects of business that is not covered in prospectus and to address the concerns buyers may have. Once this meeting is completed, Seller will be lot more open and interested in learning about what you think of his business and perspective on your offer if it is significantly different than what they are asking.
It may take some courage to actually sign on the dotted line and hand over a deposit check. But it’s not as bad as it sounds. Deposit paid with an offer is usually fully refundable. You simply have to check with the broker who is representing a seller before signing and handing over a check.
Let me complete Mike’s story:
Since I started working with Mike, we made 3 more offers to different businesses. Although we could not reach an agreement with seller on first two businesses, each time Mike’s comfort level increased in dealing with sellers and his understanding of their perspective gotten better. Finally just last month, Mike’s offer was countered by seller with minor changes and they came to an agreement that will be closing soon.