This is an important lesson in negotiating you have to keep in mind while buying a business. Let me give you an example of what happened to me recently in a very similar situation and I will explain how you may need to employ a similar strategy.
I’m in the process of looking for retail space for a company I invested in recently. It’s been a real pain simply because we need a larger space in a specific demographic area. Last week, I found a very solid potential location. I visited the space and met the landlord’s broker. The space has been vacant for two years however; that’s of no concern because we don’t need the plaza to drive business.
I found it very funny that within 24 hours of viewing the space the landlord’s broker emailed me to advise that there was another offer now and we had “better move quickly”. Amazing isn’t it? The place has been empty for two years and all of a sudden it’s in demand.
Get ready for a similar situation when buying a business. Brokers are notorious for telling buyers about alleged “other offers”. While sometimes it may be true, and certainly not every broker uses this tactic, you cannot let an alleged competing offer influence your decision. Moreover, the broker’s line of another offer is the business broker world’s version of a car salesman telling you he has to speak with the sales manager….yeah right!
My standard response to the real estate broker was the same I use with a business broker or seller and you should too if facing the same situation. I told the broker: “Congratulations, I am so happy for you. I really hope it works out. If by some chance the deal falls through let me know.”
You should have heard him backtrack.
“Well, it’s not exactly a firm offer. The landlord would love to see you guys in this space. I don’t know if they have an acceptable balance sheet to satisfy the landlord.” And blah, blah, blah, on he went. I must admit, I loved listening to him squirm.
Not surprisingly, a few days later he called me back to tell me it didn’t go through. To have a bit of fun I told him: “I am so sorry to hear that. It’s really too bad because we’re drafting an offer on another space down the street but we really like your space better. If you can get your landlord to drop the price by $2.00 a foot we’ll hold off on the other offer”. Guess what, they did – I knew they would.
If you look at enough business for sale listings, I guarantee this same situation will come up. Generally, if there’s another offer, the broker will tell you right away. Regardless, unless there’s a very compelling reason to get into the auction game, the better tactic is to tell the broker/seller to give you a call if the other offer falls apart. Most often, the other side is simply trying to sell you something that isn’t true so play their game and watch them backpedal. Even if there is a competing offer, don’t allow them to use it as leverage as they’re simply hoping the alleged “other offer” can be used to increase yours or force you to move quicker than you should.