The last few weeks I have tabled some concepts of people paying for certain services, information and assistance when buying a business. I received an interesting comment from Leon Parker (no relation), principal broker and owner of New Hampshire Business Sales (www.nhbizsales.com) who stated that he is always willing to assist buyers but it requires a buyer that knows: “what they want and being willing to pay for my services to get it, and my feeling that we have the resources to carry out the assignment.” I categorically agree with Leon.
Leon has been a regular contributor to this blog for years and always gets right to the issue. His latest comments summarize a fundamental flaw in the business buying process and that is the typical buyer’s complete misunderstanding of the process, and the legacy of procedure amongst brokers that has not evolved at all in the past 25 years. Leon’s strategy is the right approach but it is not the norm across the industry.
In attempting to identify the core problem, and specifically why so few “buyers” ever complete a deal, I think we need to review and understand some of the procedural issues which I believe are the foundation to the problem, and also the solution.
Buying A Business Is Not Like Buying Real Estate
The only experience the vast majority of buyers have had in a transaction has been when buying a home or other property. As such, many believe that the process to buy a business mirrors real estate. This includes their perception of how they will search, inspect and finance the “property”.
While there is some standardization in the real estate world, none exists when buying a business.
Sure there is a general flow of steps, but the added ingredients of human emotions, and the number of potential personalities in a deal, change the whole dynamic. Furthermore, a business is a living, breathing entity not a pile of bricks.
Moving Parts and Lots and Lots Of Them
My wife owns a title company in South Florida (and I’m happy to report her business is booming right now), however, I like to use her business as an example when comparing a business purchase to real estate.
In her business, she has a checklist of 100 items that need to be addressed in every transaction. While the work requires meticulous attention to detail and follow up, typically, about 95 of the items on the to-do list are repeated in each transaction.
Take the same 100-point checklist concept for a buyer, seller or broker in a business transaction, and my bet is that 95 of the items change in every deal. Again, it comes back to the point that a business is fluid, personalities are involved, the issues in one business are completely different from one next door, and on and on the list goes.
Standardization of the process is the only way possible to ever get this be a more efficient model because at present, it truly is mayhem, and all of the dismal statistics indicate it.
Too Much Information Is Making It Worse
I believe the process to buy a business is actually getting worse and the Internet plays a major role in the demise. While having access to business listings online is a phenomenal evolution, the abundance of information available has also muddied the waters. Furthermore, the typical buyer can search endless listings, send sellers/brokers infinite inquires, request abundant information, chase data from one website to another and yet never, ever make any progress whatsoever. If they never get out and meet sellers the whole exercise is useless. It’s like spending your time on a driving range hitting balls and taking lessons, but never getting out to play a full round. You cannot claim to be a golfer. You are just a ball-hitter.
We have become so programmed to accumulate data and information, and it is so readily available at no cost, that buyers typically hoard it. Data and information is useless unless utilized to reach answers, or compile a strategy. It reminds me of the self-storage unit I have – I don’t need it, I don’t need the bulk of the crap I have in it, I have plenty of room at my house to store whatever I need, yet month after month I pay $100 to keep all this “stuff”.
Everyone Needs To Be Re-Trained
Getting back to Leon’s point, and the ones of prior column, the only way to improve the process is to change it. Personally, I would like to see a combination of buyers having to pay for services in conjunction with an across-the-board standardization to the process. As someone who deals with hundreds of thousands of prospective business buyers each year, it is obvious to me where most fall off the wagon – instead of having a roadmap through the process they zig zag their way to failure.
Since new buyers constantly enter the market, they cannot be re-trained. Instead, the process has to be set for them.
In this regard, business brokers and sellers must play a more important role in setting forth a standard procedure for how and what information is required from the buyer and conversely disseminated to them.
There has to be consistency between individual brokers and offices and states. Buyers see a business with one broker who has a completely different set of procedures, requirements and documents than the broker office down the road. Brokers share listings in one state, but not the next one. The list goes on to perpetuity and this lack of due process is in fact a major contributor to the overall market inefficiencies. I am not laying the blame solely on brokers, but they are the only stakeholders that can influence the process because they remain in place while the buyers change.
How welcome it would be if the key associations drew up standard policies that would be implemented nationwide. There is no doubt in my mind that well thought out procedures would immediately result in more qualified buyers staying in the process, the “lookers” would be eliminated, and more closed deals would materialize.
Hey “Buyers” – You’re At Fault As Well
While I can easily pontificate about how to repair the market woes, unfortunately, it is not getting fixed anytime soon. Besides, brokerage is a legacy business and loathe to change, so buyers cannot count on it. Instead, buyers have to go into the process understanding what they face, and how to hurdle any obstacles. If you simply want to spend time looking at listings, don’t claim to be a buyer – you’re a “tire-kicker”. If you want to be a buyer, you need to get in front of sellers. If you want to see company financials and you are not prepared to furnish yours, don’t expect to always get them. If the broker wants an offer before they give youdetailed data (no matter how stupid that strategy is), you may have to play their game. If you want to have people help you then be prepared to pay for their time and services. If you want to get valuable information, you have to pay for it. You are not going to assemble an action plan that will explain what to do at every stage of the buying process strictly by getting tidbits of free general information off the Internet.
If you want to successfully navigate this process you need to understand the process itself. Understand that buying a business is not like buying real estate. If you do not put yourself in a position of being well prepared and knowledgeable, then you are going to come off as an amateur to sellers, brokers, and bankers. Even worse, this exercise will prove to be a complete waste of time. Since the current buying process is broken, instead of spending time complaining about it, just recognize the moving parts and have the know-how to deal with them.
Have great week.