Nearly Every Offer You Receive Is Worth Considering
Post by Business Broker Jay Lehenbauer, Certified Business Intermediary (CBI), and Apex President and Business Broker Doug Hubler, Certified M&A Professional (CM&AP)
When you’re ready to sell your business, you may feel like you’re putting your very self out to bid. So it’s natural to feel offended if a buyer submits an offer that shows he doesn’t value your business as highly as you do. But we’d like to help you see that nearly every offer you receive is worth considering.
Remember, most buyers are feeling pretty vulnerable, too. Many are putting their life savings on the line to buy your business.
First of all, you need to trust your broker to price your business competitively and only bring you deals that are worth considering. We rarely meet buyers who are trying to take advantage of a seller. If we do, we probably won’t even ask you to consider the offer. Remember, we represent you as the seller, so we always keep your best interest in mind.
As a general rule, we won’t consider an offer that’s less than 75% of the asking price. That’s a simple matter of our credibility and trustworthiness. If we do get a serious offer under that threshold, we might do some research to find out where the potential buyer is coming from. Does she know something about the business that we failed to uncover during our due diligence? That’s rare, but we do try to consider all the possibilities.
Low Offers May Have Merit
So, what happens if you get an offer that’s within 25% of your asking price, but it still feels too low? Here are some ways to consider it:
- How long has the business been on the market, and how quickly do you need to get out? If you’ve been on the market for more than a year, you might consider taking a lower offer.
- What can you do to lower the price? For example, can you remove some assets – such as older inventory or equipment – and sell them separately?
- What elements of the deal can you negotiate? Financing part of the purchase for the buyer may get you a better price, but bank financing and cash at closing may be more appealing.
Walking Away Can Be Dangerous
Several years ago, we were working with a seller whose asking price was $1.8 million. He was offended by a solid offer for $1.2 million and turned it down. Six months later, he shuttered the business. He would have been lucky at that point to get $100,000 for the inventory.
Another client priced his medical services business at $15 million and walked away from multiple early offers in the $11 million to $12 million range. A few years later, he sold for just $4 million.
Compromising May Work
Recently, we were helping a seller who wanted $1.1 million for his business and real estate. After two and a-half years on the market, the best bid he got was $400,000. He desperately needed to pay the bank and settle some other debts, so we all worked together and got creative. The buyer, the seller, the bank and Apex all gave a bit to make the deal work. And the proof is in the pudding. We’re still friends with the buyer and the seller today. The buyer has approached us about additional deals, and the seller has given us two referrals.
Keep the Lines of Communication Open
We often talk about the importance of building trusting relationships among the buyer, the seller and the broker. Some tips for successful negotiation:
- This is a business transaction; try not to get emotional or take things too personally.
- Even if you get upset, keep the lines of communication open.
- Discuss every offer and consider why it was made the way it was.
- Finally, be sure to have difficult conversations face to face or at least by phone. Email and texting can quickly send you down the path of misinterpretation.
If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!
