Small Business Sellers Substantially Increase Their Chances for Success By Understanding Business Buyer Motivation For Their Business
Business buyer motivation should be a fundamental consideration for business sellers preparing their businesses for sale. Business buyers want to reduce their risk when they buy a small business. While business buyers have numerous reasons for why they want to buy a small business that they can call their own, the guiding fundamental motivation is avoiding making a mistake in buying a business. In short, business buyers want to buy a successful small business while they avoid risk.
Business Buyer Motivation = Risk Minimization
Understanding that business buyer motivation is based upon risk avoidance is quite helpful for sellers preparing their business for sale. Being empathic to the individual(s) who will buy your business helps determine how to best prepare the business for sale, how to communicate with qualified prospects and how to problem-solve during the business transaction.
To avoid risk, sellers will do well to consider all the business documents, disclosures and financial statements. Is the presentation thorough? Is the information clearly presented? What are the risks in buying the business? Can the seller do anything now to minimize those risks? Ultimately, the business seller needs to look at their business as if they were the buyer to 1). Identify the risks and 2). Identify realistic solutions. In so doing, the seller can prepare their business for sale in a manner that minimizes the business buyer’s concerns and objections which then paves the way for a successful sale.
Most business buyers struggle with anxiety and excitement when buying a business. They zero in on the risks to weight whether they are substantial barriers to purchasing the business. Smart business sellers anticipate their business buyer motivation by identifying and addressing these barriers in a straightforward and transparent manner. In so doing, sellers demonstrate a willingness to transact in good-faith which encourages buyers who fear that sellers are withholding vital information about business performance.
Here are tried-and-true suggestions to help you prepare for working with your business buyer motivation to reduce risk.
Be forthright & honest with your buyers
In all your interactions with your buyers, it is essential to be forthright and honest. Buyers will be looking for risks when they interact with you, your broker, your documentation, etc. Avoid withholding information, mischaracterizing information, or distorting business facts. While you want to portray the business in a positive light, avoid mischaracterizing or “puffing” the information.
Avoid being negative
Avoid complaining about the business, employees, or sharing “war stories” about your business. Simply put, let the business facts speak for themselves. Let the buyer paint a positive picture of your business by how well you present accurate business facts in a straightforward manner.
When a buyer is examining a business, they are envisioning themselves as the owner and that’s a good thing. Don’t get in the way of a buyer dreaming about owning your business by creating a nightmare with false, misleading information or overemphasizing the negative aspects.
When in doubt, disclose everything
Do not play hide the ball with your business buyer. Nothing will kill a business buyer’s motivation when they realize the seller is not fully disclosing all material information regarding the desirability and value of the business. It’s not up to the buyer to find the skeletons in the closet. It’s up to you to disclose everything. Failing to do so can lead to a lost business sale and possible legal consequences for fraud.
When there are issues to disclose, present the information factually without embellishment. Again, look at it from the buyer’s point of view and ask yourself what would you want to know if you were the buyer dealing with this particular disclosure? What can be done to remedy the issue? What will the buyer likely inherit by taking on your business? Be prepared to be helpful to the buyer with information on how to overcome the issue. You don’t want the buyer to think that you are dumping the problem in their lap; rather, you want them to see you as a resource to help them tackle a solvable problem.
Know your why
The first question a buyer typically asks the seller is why they are selling. Be prepare to provide a clear response that does not sound vague or shady. Stating “other business interests” is usually suspect.
Buyers want to know that you are leaving the business not running away from it. Business buyer motivation will be torpedoed if you are responding in a way that leaves the buyer with more questions that answers or makes them suspect that you are not being forthright in your response.
Readily agree to sign a non-compete agreement
Most business buyers want the seller to sign a non-compete agreement which limits the seller from performing similar work within a specific mile radius from the business. If a seller balks at signing one, buyers will be understandably concerned (read: alarmed) and this will kill the deal.
Business buyer motivation for a signed non-compete agreement is another essential element of a successful business sale. Failing to adequately and immediately respond to buyer’s request with reasonable limits will terminate business buyer motivation.
Readily agree to train the buyer in the transition period
Most business sale agreements include a transition phase post-sale where the seller provides the buyer with on-the-job training as part of the sale. Buyers will need help in adjusting and adapting to the business. For most businesses, the time period is about 2 weeks but this varies widely on the type of business, the buyer’s experience, the seller’s availability, etc. Nonetheless, sellers should readily agree to provide a reasonable amount of training as part of the sale. Failing to do so can be a deal-breaker.
Thoroughly respond to buyer’s business performance questions
When buying a business, a buyer will have a myriad of questions for the seller. They will ask about everything including finances, equipment, employees, etc. It is imperative that you respond quickly and thoroughly to buyer’s questions. Some sellers grow tired of responding to buyer requests, particularly if they have fallen out of escrow with other buyers. Yet, it is important not to let the negative prior experiences darken the current buyer’s interest for learning as much as they can to complete the transaction.
When you have a well-vetted buyer with the right background and resources to buy your business, it is important that you welcome their inquiries as motivation to buy because that is exactly what it is. If they were not interested, they would not be asking. Moreover, your timely and thorough responses will help carry the deal to the finish line which is what you want to be focusing on.