Jackpot Fever

Posted on May 7, 2008

Most rookies at selling a business make common, costly mistakes, blinded by flashing dollar signs. Put away your excitement and be careful what you say.

Ring, ring. You answer, and hear, “Hello, I’d like to buy your business.” After a few questions to see if it’s just another telemarketer trying to build up listings, it sounds real. The thought, “Lotto Winner” passes through your head, and you smile. While the phone call is a compliment, it’s a long way from money in your pocket. How you behave from this minute on could have a huge impact on the outcome, and most rookies at selling a business make common and costly mistakes.

Even if you’re not ready to sell, going through the selling process is healthy, and will build experience for you down the road when you are ready to exit. One caveat: Be careful with competitors and where if word got out it could hurt your business. In these situations, only get involved in the process if you’re serious about selling.

Put away any excitement you might be feeling. The posture you need to have throughout the process is that you are interested in selling, but not eager. That means you’ll be responsive to their requests and will spend some time with them and some time getting them answers, but they should feel and know that you have other options (including not selling) and that you were not intending to sell (even if you were thinking about it). You don’t want them to know that selling would be an amazing outcome for you (even if it would be). If you’re not a good poker player, and broker or buyer that came to you can probably feel your vibes of excitement, then try to find someone else to do most of the interfacing. Ideally, they should have some experience in selling or negotiating, and you should trust them.

You should know that most “deals” don’t happen. There are a thousand ways deals die. You don’t know it’s done until the contract is signed and a check is in your hand. So even though you might be really excited about selling, be sure to keep running your business and your life. Selling a business can and usually does take months. If you neglect your business and the sale takes longer, the buyer will pay you less because sales or profits will have started to drop. Just as bad, if it doesn’t sell, you’ll have a less healthy business to run.

There are many different types of buyers and many different reasons as to why they are buying. You can’t know how to attract them and push the price higher (and the terms better) if you don’t really understand them. If a broker has called, you’ll need to understand the broker and what they really do as well as understanding the buyer they represent (if there even is a specific buyer they represent). Be curious. Learn all about them. Understand why buying your business makes sense to them. How do they value businesses and ask for examples they’ve closed in the past. While it makes sense early on to figure out if the kind of prices and terms they work with are even in the same ballpark, don’t ask or talk about the price of your business! Jumping to price negotiations too early is always a mistake. Check references carefully.

Think before you speak with the buyer or his/her broker. They are not your friend, even though it feels like they are so friendly. If it’s a broker, their goal is to get the deal closed, so they can get paid, and if they called you, more than likely they represent the buyer. The buyer could have told the broker that if they bring in deals cheap, they’ll be the broker for the next opportunity—some sellers do multiple acquisitions (a roll up). If it’s the buyer directly, you know they want to get as much as possible for as little as they can. They are working you to try and figure out your weak spots – where you’ll give in, what will make you say yes most quickly. The more they get you talking, the more they’ll know how to get what they want. For example, so they learn that you have high school kids but no college fund yet—so you probably need short term cash. You get the idea. Chances are, you are a rookie at mergers and acquisitions compared to them, so be careful with your communications and do it all with thought and purpose.

Once you know what they want, make sure they know how perfect your business could be for them. It all has to be real, of course, but highlight the aspects of your business that will help them achieve their goals. Just like selling anything, you want THEM eager and excited. Fishermen always want to set the hook BEFORE trying to reel them in, and so do you. Don’t forget, if you reel a buyer in, but at the end you decide you don’t want to sell, you can always “catch and release”, and walk away from the deal just before signing.

Be sure to learn all of the terms of the deal — exactly what they are buying or not buying, what happens to debt, what restrictions on you there might be, what role you’ll have after the sale and lots more. Talking about price is meaningless without all this context. Once all that is in place, then if at al possible, try to let them make the offer first. It might be higher than you expect, and you can almost never bargain up from an asking price. If and when the check is placed in your hands, then, and only then will you be allowed a bout of Jackpot Fever.

Takeaways:

1. Hide your excitement. Your attitude should be interested but not eager.
2. Keep running your business and your life, most deals never close.
3. Be careful about what you say — they’re looking for your weak spots. Ask lots of questions and learn a lot about them so you know what will excite them — what they will over pay for. Then make sure you emphasize honestly those aspects of your business.
4. Define the deal carefully, including some of the terms. Talk about price late in the game.