Years ago, I remember seeing the late comedian Buddy Hackett on The Tonight Show. Johnny Carson asked him how, after all these years in showbiz, was he was able to keep coming up with new material for his hour-long shows in Las Vegas. Hackett said he just observes everyday life, and somehow finds comedy in most of it.

Each week, I think about what I am going to write in this blog, and I take this exercise seriously. Identifying a specific topic for me is similar to how Buddy Hackett developed his materials – it comes from everyday life, and specifically from the interactions I have with business buyers, sellers and brokers.

I sometimes receive inquiries through our contact page from people who have not purchased our materials, yet send in a question or two, which I am always happy to address. Some of them however make me shake my head, and this week I saw two such inquiries that are worth discussing.

The first was from an individual who obviously did not take any time whatsoever to read anything on our website. He simply said: “send me the last three years financials on all your businesses.” First, we don’t list businesses for sale. Second, it was an inquiry that screamed: “I have no clue what I am doing.” Let’s assume we did list business and I was the receiving seller or broker of this inquiry. It would be easy to justify sending it to the delete file immediately.

When you submit an inquiry for a particular business for sale listing, first of all make sure you are on the right website.

Second, you cannot expect any seller or broker to take you seriously with this type of message.

There is a very specific process to be followed. Identify the business, tell the selling party you are interested, and above all, make it very clear that all you want is the appropriate non disclosure document to execute so you can learn more about the business.

That is the ONLY way to start the process.

You may not have any experience buying businesses, but you do not have to advertise the fact.

The second interesting email inquiry I had this week that got me thinking was from a gentleman in the Midwest who had found a particular business and was about to make an offer. He explained that the seller just had a deal fall apart with another buyer and the seller was “exhausted” from the process. This buyer felt he could “really take advantage of the seller now.”

Although the buyer had some very specific concerns about the business, and namely about three key accounts that represented over forty percent of the volume, he felt he could leverage this for a better deal, but not now.

While it was a text book case for an earnout, and he could have likely negotiated very favorable terms, he had a different tactic. Instead, he was going to put in a full price and terms offer, “get the seller excited”, and wait until the end of the due diligence period to go back and renegotiate the deal terms incorporating an earnout on these top clients along with a reduced purchase price. He believed that the seller would “cave in” rather than having to go look for yet another buyer.

When I first read the email I figured I was being secretly taped by Candid Camera, or as my kids would say, I was “getting punked”.

Realizing no TV cameras were in sight, it dawned on me he was serious. So let me make sure any buyers reading this know loud and clear that this is not the way to go about solidifying a deal with any seller. This strategy will only result in a lot of dead deals. I have long believed that when a buyer and seller trust each other, and the buyer wants to buy, and the seller truly wants to sell; you cannot stop them from getting a deal done.

Conversely, when either party does things to erode that trust, credibility is gone, and deals head south quickly.

If/when you discover issues when analyzing the business, you should either discuss and resolve them, or incorporate a remedy in an offer.

Going into due diligence with the sole agenda to renegotiate is not the right approach.

The idea of reaching an agreement with a seller is just that – to reach a deal.

Then, you go into the formalized due diligence phase with the strategy to validate whatever has been represented. If not, you either walk or renegotiate.

But

don’t waste the time, money, and effort consummating a purchase agreement with known “red flags” unresolved with the hopes that the longer you play out the deal, the more likely the seller will be to give in.

You may discover the exact opposite response, and then everybody loses.