This article was originally posted on 21st of March 2016.
Before we start identifying time wasters, it is helpful to recognise a perfect buyer. There are 5 main points;
- committed to buying a business
- can describe all the important facets that business should have for them
- already know their budget and how they will finance a purchase
- have a clear idea of how they will add value to any business they buy
- be open and honest in their communication with you
Open market sales attract more time wasters
An open market sale is one which is widely advertised. Think about it. When Cadbury was bought by Kraft, we only got to hear about it after the deal was done. Deals of that size are not openly advertised, they are conducted through a closed network of M&A professionals.
In the SME space, almost all business sales are open market. By definition the sales are openly advertised to attract buyers. Don’t worry, the sale of your business won’t be announced by the local town crier. Confidentiality processes will protect your business during an open market sale as we discuss here.
However the very fact that a business is being openly marketed for sale attracts all interested parties, and some of those will be time wasters.
When to go for open market sales
Selling a business is a numbers game. The wider you advertise, the more enquiries you are going to receive. The more enquiries, the more likely you are to find people who want your business. The more people who what your business, the more likely you are to find a buyer who can fund the purchase – a buyer you like and would trust your business with. A buyer who the staff will get along with. A buyer that has the best interests of your customers at heart, and do on. Fish in a bigger pond and you are more likely to find the right fish – your perfect buyer.
If you only approach a select handful to begin with, you risk a higher chance of not finding your perfect buyer.
In the case of Cadbury with its international brand and reputation, a short target list of companies who could afford the price tag will have been drawn up. Companies in the confectionery space or wanting to get into it. Companies of a similar size to Cadbury. There aren’t too many of them and open market advertising was inappropriate.
For our clients, Mo & Andy, who were selling a boutique ladieswear business, an open market approach would garner the best results.
Mo and Andy commented “They sifted through various enquiries very thoroughly and kept us informed with all their telephone and email communications, and any questions we had along the way were always answered promptly. They were very proactive and professional.”
What challenges are there with an open sale
In modern business, the internet is king. Business sales are no different. The majority of people looking to buy businesses search their favourite brokers and listing sites.
Consequently the basic sale information for any business has to be found online, which means everyone can register an interest in it, including;
- genuinely interested buyers
- well funded buyers
- people who think they want to buy
- nosey people who have already seen how much the house at no40 is on sale for and how much the Jones’ must have paid for that new car. They may have watched Dragons Den and had a spark of an idea about being an entrepreneur and hit the internet search button out of curiosity.
If you choose to hire the services of a business broker, it is they who deal with these time wasters, tyre kickers, nosey parkers, not you. Your focus has to be on running your business until the sale completes.
Who are these business buyer time wasters
These people don’t set out to waste your time. They are not deliberately diverting your attention but they are the polar opposite of our ideal buyer and fall into these main profiles;
1 Not a committed buyer
They may have always dreamed of owning their own business but never made the jump. For our clothes store, we had people “who had always had an interest in fashion” or who’ve “imagined myself at fashion shows selecting stock for the new season” or are supported by others “my friends are always complimenting me on my fashion choices”.
The quality lacking here is action. A large proportion of the population dream of life changing decisions like this, but very few act on it. We need to focus on the few who are willing to take action.
2 Have not defined their ideal purchase
If we take manufacturing, it’s a huge sector. Food manufacturing, plastic manufacturing, clothing, electronics, furniture, the list goes on. This is where online listings can hinder slightly.
Online website group sales by type, e.g. manufacturing. If a buyer doesn’t continue to define their search through further menu options, they will register enquiries for a very wide range of businesses.
Let’s stick with manufacturing as our example. They get a bit click happy online and you receive enquiry requests on food, furniture, chemical and toy manufacturing. When you finally get to speak, you discover they want food manufacturing, but are not interested in meat processing, diary or bakery items. They want a vegan ready made meal manufacturing facility. So you begin to refine the acceptable parameters of their search with them.
Location is another common criteria. You may have a vegan food manufacturer in Manchester but your interested party refuses to relocate from London.
Or when delving in conversation, it is apparent they don’t want to work in the business each day and just want to take a strategic role. Any business they buy will need to have a supporting management structure already in place to facilitate this.
This is not all the buyers fault. In advertising a business, brokers need to be a little vague to maintain confidentiality. Key details which would immediately identify the business are omitted from internet adverts. So in ensuring we can generate the right buyer, brokers know they have to speak to the wrong buyers to narrow the field.
3 They don’t know their budget
If they are trying to fulfil the dream described in (1) above, they will probably look for the ideal business first. Any thought of how much it will cost and what working capital they need is secondary.
For the small end of the SME market there is sometimes an assumption that banks will lend. Or an assumption that banks will lend big. On anything. They remember the boom days and think their £10,000 life savings will easily secure a half million pound loan. Okay, a slight exaggeration, but you get the drift.
This article from BusinessesForSale.com is a great point of reference on raising finance to buy a business.
4 They don’t communicate well
Communication on all sides is key to a successful business sale. If a potential buyer refuses to share their own background and experience with you, be wary.
If they fail to make the calls promised or email when expected, be wary.
If they object to common confidentiality procedures, be wary.
If they only email and won’t phone (or visa versa), be wary.
If they probe as to how how long the business has been for sale and what the minimum acceptable price it, be wary.
Worst of all, you catch them bending the truth, proceed with caution.
Don’t rush. If they can’t follow the simple process of buying a business now, further down the line doubts and objections will only magnify.
(The same goes for sellers too, by the way).
These factors are commonly displayed in people looking to ‘bag a bargain’. If sale terms are agreed with a person like this, it will often not complete because they are not committed to the business in the first place. They were looking for a quick deal, not for a sustainable business investment.
5 The nosey neighbours
These people don’t even have a dream to buy a business, they are nosey and no more. Curious time wasters looking for a bit of news, information or gossip that no one else has.
6 The ones who have been on a course
There are people who will have paid to attend a training course named “How to a buy a business with no money down” or “How to buy a business for £1” or similar. But if they aren’t paying money for the business who is?
As I write this in the pandemic of 2020, there are a lot of businesses in trouble where a ‘no money down’ deal might be appropriate. But, the successful, profitable business with a proven track record that we represent want fair value on sale. A win:win deal.
What these buyers are offering is to raise lending against the assets your business owns. This makes engineering and manufacturing businesses a particular target. They raise a loan against the production equipment to enable them to pay you something at completion.
When there is a shortfall and you will be offered a retained shareholding in your own business with a promise to purchase in time to come. A business that now has increased lending debts to pay back and one you no longer have any control over. These buyers need very carful consideration.
How do we spot time wasters and identify genuine buyers
After 15 years of brokering sales we have developed a 6th sense for time wasters.
That’s bigging ourselves up a little too much. None of what we have outlined above is rocket science. Most just take a phone call and some time to understand.
Our 6th sense is born from asking questions, and whilst these questions vary from sale to sale, these below are great for getting your 6th sense started.
- What’s their working background?
- What experience or qualifications do they bring with them?
- What does their perfect business look like?
- Have they quit their day job yet and if not, what is their notice period?
- Have they bought businesses before?
- If so, ask about that deal and the structure of previous buys
- What cash can do they have for the right deal?
- Have they opened up discussions with their lenders yet?
This combination of questions will give you a good, all-round insight of those first 4 bullet points we listed of a perfect buyer.
Think of it like speed dating. The quicker you can confirm if someone is a match for you, you move on to the next step. The quicker you realise they’re not, saves time for all concerned.
The winning result for Mo & Andy
“We finally completed the sale at the end of February and their communication with accountants and solicitors was excellent. Their selling fees were sensible and I would not hesitate to recommend them to anyone wishing to sell their business.”
On casting the net wide with an open market strategy, we received, worked through, emailed and spoke with a total of 60 unique enquiries.
Filtering got this down to 5 people who met with our clients; resulting in 3 offers; 1 of which was acceptable.
The buyer ran a similar retail business, with a mostly female clientele. Although not in clothing, they knew the demands of business and had transferrable skills. They also wanted to expand.
Adding a duplicate 2nd store had been a considered, but spreading the business risk by buying a complimentary business was more sensible to them.
They were straightforward in their communication and as equally direct with their questioning to us. A reflection of knowing exactly what their ideal business needed to be.
Crucially, they was able to prove their funding through a loan agreement letter from the bank.
It all added up to an ideal buyer……for this business.
Time wasters are a necessary evil
It is fair to say that only time taken speaking to potential buyers will establish if they are the perfect buyer for you. As brokers representing numerous clients, what is not right for your business may be right for another, so working through these conversations has benefits for us.
However, how you set up your business and how you choose to run it has a huge impact on its appeal to the buying pool. If you can broaden your business appeal to buyers, it increases your chances of finding your perfect buyer even more.
Why not start the ball rolling with a free valuation here and build from there.