The business for sale market is completely upside down right now. In some sectors absolutely no deals are getting done such as restaurants and hospitality. In others that buyers deem to be recession proof or make that pandemic proof such as cleaning and PPE companies, there is activity.
The one thing that has not happened in the lower market is that valuations have not plummeted across the board. Nevertheless, there are still tons of good deals. At the same time, there are still many sellers who are delusional about the value of their businesses and staunchly believe that the market in their sectors will rebound. I hope they are right because it is ultimately good for the entire business for sale space. Sadly, I fear they are wrong. There are simply some sectors that will not rebound.
When The Market Is In Turmoil You Have To Be Nimble
So how can prospective business buyers deal with an uncertain market, a wide swath of valuations and a disproportionate number of unrealistic sellers?
Make offers! Lots of offers. It is the only way you can truly take a seller’s temperature and know what they are thinking.
This does not mean being reckless. It does not mean making unrealistic offers, but it does mean making aggressive ones. To operate well in today’s market, once you identify a potential target, do not be afraid to submit an offer. This can be done easily and inexpensively with a non-binding Letter of Intent and then you can begin your formal due diligence period.
Making Offers Is So Important
There are two key aspects about offers that buyers must keep in mind:
- An offer is the only way that a buyer can convey they are serious and a seller is forced to be completely transparent about what they are willing to accept.
- Buyers have to get into the habit of making offers. It is too easy to spend endless hours searching listings and researching businesses and sectors looking for the perfect one (it does not exist). For first-time buyers, there is often great hesitancy to make an offer. If you want to get into the game, you have to get used to playing. The only way to do that is to make offers. Also, offers are a great first step to orienting a buyer to be able to ultimately pull the trigger and close a deal.
Remove The Emotion – It’s All About Logic and Strategy
If a seller counters with unreasonable price and terms, do not be afraid to move on. Conversely, do not draw lines in the sand with deal-breakers you are not prepared to honor. If the seller counters and you are still far apart but the business has checked all the key boxes you are looking for, there is no reason not to adjust the offer. Early on, it is important to get something when you give something, so keep this tactic in mind.
Offers get rejected all the time; that is part of the process. Never fall in love with the business until you own it. Buyers can get way too emotional during the negotiations and start to see all the wonderful things they will experience as the owner. This pollutes logical thinking so set aside these thoughts. Approach the buying process in a logical way.
It may take several offers on a number of businesses to nail down the deal. Do not get discouraged. Stick with the process, keep the end game in mind, make offers, and you will get to the finish line often times with a much better deal that you could have ever anticipated.