Negotiating & Structuring The Deal

In our business, we speak with thousands of prospective business buyers every month. I thought it would be an interesting exercise to review the correspondence of the past two months to see if there any interesting trends being developed. With that in mind, we uncovered some very interesting data.

Industry Specific Buyers Are Getting More Deals Done

One of the most challenging aspects for prospective business buyers is identifying what type of business is right for them.

This has always been an issue, and has been the number one concern raised by buyers for years in all of the studies we have done. Interestingly enough, it has become more of a factor recently. Our firm publishes a number of guides for buying businesses including industry specific ones geared for the purchase of a restaurant, gas station, online business, liquor store, retail business, and some country specific guides in addition to our flagship which is for a broad range of businesses.

What we are seeing is that the clients who purchase a specific guide are getting into deals much quicker, and they are getting deals closed in record numbers compared to prior years. While it would be easy to draw a simplistic conclusion stating that once a buyer knows what they want, they will accelerate the process, there is a bigger issue at play.

Since there is so much uncertainty in the market, and confidence levels are at all-time lows, it is imperative for any buyer to work harder to zero in to the type of business that makes sense for them.

In this market, most businesses are not performing well, and so the more sectors that a buyer sees, the more their confidence can shrink because at every turn there is more bad news than good. However, once a buyer can identify a particular business type, they can focus on each business’ core fundamentals. While that particular sector may be down, they can choose the best from what is on the market. Or, they can solicit prospects directly.

Taking an open-minded approach to choosing a particular business type is generally the right way when starting out. But, the quicker you can get some clarity on what is the right business for you, the better off you will be.

Due Diligence Is Down But Deals Up – Go Figure

In culling through our emails, we have seen a drop of over thirty percent in the ones directly related to questions about due diligence.

The due diligence stage of the buying process has long been one where as many deals fall apart as those that get done.

The statistic that has always been used in the industry is that fifty percent of the deals die in due diligence. However, we are seeing a drastic shift. Eighty-five percent of the deals we are seeing go to this formalized stage are getting closed. What this tells us is that

buyers are actually being far more prudent in their analysis leading up to the due diligence phase which of course is a logical approach.

For sellers and brokers, the lesson is that they need to do a better job getting prospects to this point. I have always thought it is ridiculous when sellers and/or brokers try to force buyers to make offers and begin due diligence without first providing adequate details and documentation on the business. Clearly, that methodology is even less effective in the current market because buyers are wary enough as it is. Adding another layer of doubt only magnifies their concern.

If, on the other hand, a buyer has ample financial and business details so they can put forth a well thought out offer, those deals are closing more than fifty percent more often than in the past. To me, it has always made sense to have the process evolve this way. Now, it may be time for the selling side of the deal to get the message.

Mindsets Are Changing By The Minute

Our business is doing extremely well, but I must tell you that from day to day there seems to be these ridiculous shifts in volume. In the past, if we did not introduce any new advertising campaigns, or make any changes, it was very easy to predict daily, weekly and monthly sales activity. Now, it seems to be all over the place with record sales one day, and then very poor activity thereafter. Clearly, the endless doom and gloom in the media plays a role but more importantly, it highlights the overall volatility of the business for sale marketplace.

This is a time when “theoretically” the activity levels should be off the charts.

When there is rising unemployment, low interest rates, and stock market fluctuations, it is the “perfect storm” for business sales activity.

Unfortunately, the storm factors are so grossly exaggerated now, and by adding plunging real estate, and the lack of credit, the whole market is on shaky ground. What I find particularly disturbing is that people seem to be swayed from one minute to the next about how everything will unfold.

In turbulent times, it is necessary to step away from the carnage. It is very difficult not to feel bombarded these days. The bad news just keeps on coming, and it really can be overwhelming for some people. One thing is certain: it is hard to cultivate any plans for the future if you are caught up in the immediate mess. This is especially true when it comes to buying a business.

If too much of your time is spent contemplating all of the present-day negativity, you simply will not be able to analyze any opportunity with the required degree of clarity.

I have found that the only way to stay on track is to completely tune out the noise. If you want a good remedy to do so, for the next week, avoid reading any newspapers or online news sites. Do not participate in any surface conversations of current events. Forget about the daily stock market. I promise that after a week you will feel much better, and then try it again. If you take control over what you can control, and leave all the noise for everybody else, you can focus upon what you need to do to get to where you want to go.


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