Show me the money!
The lighter side of a serious issue...
Too often, a typical scenario looks like this-
Buyer finds a business for sale. (usually for sale by owner)
Looks at it.
Meets with seller.
Small talk so the seller will like the buyer.
Then the buyer says-
"We really like your business and are very interested.
We would like to look at your books (tax returns, P & L,
income and expense reports)"
The buyer just blew the biggest chance he had!
50% of the sellers will agree to show you their books and
the other 50% will say submit an offer in writing first. The
buyer has nothing to lose. Unless, that is, he was a real buyer
for that business. Most of the buyers out there are professional
lookers. Some buyers call today, that have called me five years
ago. They are still looking for the same business!
Now that you've got the sellers books and analyzed his income
and expense reporting techniques, what are you going to do with
it? Were you testing to see if he was telling the truth? Now
that he has put his books where his mouth was, are you going
to put your money where your mouth now is? That move could cost
I know. I know. How can you make an offer without looking
at the books?
More importantly, let me ask you now, how can you 'renegotiate'
your offer until after you have looked at the books?
Unless you are a business broker, or a seller who has run
an ad in the Wall Street Journal, you cannot begin to imagine
how many buyers call or visit and say "I would like the
last five years tax returns, profit & loss, and by the way
do you have audited statements?"
OK, you've got the books, everything the seller told you was
true. It's all there in black and white. What can you do now?
"We'll think about it?"
"We'll get back to you?"
There is nothing to think about. He told you it was X amount
of dollars, you said you were interested, you wanted the books,
great! Are you going to nitpick about a few discretionary cash
items, write-offs, 179s or the fact the seller paid his mother
to answer the phones?
The proper way, would have been to meet with the seller, learn
about the business. But more importantly, sell yourself and your
ability to purchase the business. Are you paying all cash for
the business? Let the seller or broker know up front. It may
make a significant difference in the price, attitude and disclosure.
Are you seeking outside financing? Again, share it with the broker
or seller up front. The broker knows what businesses will and
will not qualify for SBA funding or finance company participation.
Have you already been approved by the SBA as a preferred purchaser?
Let the seller know! Most sellers hear SBA and think nine months,
they don't know it can be done in 30-60 days when things are
in order ahead of time. The broker knows...
You are not merely trying to buy a business, you may be competing
to buy a business. And if it is a good one, you will be competing
to buy the business. The broker could have ten businesses
for sale, each with ten people interested in buying it. You are
but one out of the ten times ten. You will have one chance to
make an impression.
The buyer who gets the business is the one who came in with
VOF and VODs or a letter of credit from the bank or attorney.
(Verification of Funds and Verification of Deposit)
"Hey, you want to see the seller's books be
prepared to show him yours first."
This is where the buyer went wrong originally. When our buyer
at the top of the page asked to look at the books, he was not
a buyer, not even a prospect yet. He was a suspect. Had the buyer
come in with his own financial books in order, a neat business
acquisition plan, the broker or seller would have said "Well,
would you like to see the books and records with your coffee?"
Can you see the difference in the power of where you can negotiate
There is negotiation and then there is re-negotiation. When
you ask to see the books and then make the offer, you have no
where to go. What if the books were better than you expected?
Think you can still make a lower offer? You'll be lucky if the
seller doesn't raise the price as you had no commitment in writing.
When you make a written offer with a deposit, subject to inspecting
the books and verifying that they are within 5% of the offer
made to you by the broker or seller (and the same selling offering
is attached in writing to your purchase offer) you are negotiating
from a position of power. You are saying 'here is my offer,
accept it or reject it and prove your claims of income. I have
already proven my ability to purchase.' But even better,
if the inspection shows discrepancy, you now have the ability
to re-negotiate your offer into a more favorable position for
For some of you that say you don't want to disclose your finances
as you are afraid the seller will raise his price if he knows
how qualified you really are... I can appreciate where you are
coming from. I used to feel that way too.
These are some lines that do not work as well!
My favorite is the guys who say "That information is
personal, we can't disclose that to just anyone." (no
The roll up artists that say "We represent a closely
held company, we are not at liberty to disclose our financial
assets." (no money)
"I have backers and I just need to find the right business."
"I am going to collateralize the assets to purchase the
business." (no money)
"The seller will hold a second and the SBA will lend
the balance." (no money)
"My Uncle Louie is wealthy and always wanted to back
me..." (no money)
"DON'T WORRY! I can afford it." (no money)
Usually wearing a fake Presidential Rolex with a nugget band.
I do have to give credit where it is do.
One of the all time best was a seller that said to my buyer,
"If you've got two million liquid show it to me. Otherwise
this meeting is over." (I had warned the buyer ahead of
time.) He produced stock portfolios, and money market accounts.
He also had arrived to the appointment driving a Rolls Royce.
The seller had always been a pain, but with this prospect,
he waived me aside and said to the buyer "never mind what
his listing says ($2.8 mil) I like you. We are asking $2.2 mil."
Just like that, $600,000 was knocked off the price and the
negotiations had not even begun! Oh yeah, I later learned the
Rolls was rented for the day!
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