1. The first category of mistakes really amounts to some basic etiquette and simple common courtesy. It really doesn’t take all that much to be a decent human being on this planet. The Buyers that have good people skills, are respectful and demonstrate a reasonable level of common courtesy and common sense tend to much more cooperation in their negotiations for flexible terms and much better deals in general.
Some of the basic errors are as follows:
a. Refusing to sign a confidentiality agreement and/or demanding the business financials before signing a confidentiality agreement. It demonstrates ignorance or complete disregard for the process. In any event, it tells the broker from day one that the Buyer will be problematic. The broker will most likely move on to someone more cooperative.
b. Signing and returning a confidentiality agreement and then going directly to the business and talking with the Seller or the Sellers employees without setting an appointment through the Broker. Don’t go around the broker. It is rude, disrespectful and you can seriously damage a Seller’s business. Additionally, you’re likely to be blacklisted with that broker so you better hope that one business was the right business for you.
c. Challenging the Seller three minutes into the initial meeting by saying “You’re asking too much. How much are you willing to come down?”. That’s a good way to get the Seller to completely shut down for the rest of the meeting and any great deal you thought you might be able to negotiate just went down the tubes.
d. Thinking the only way to win is if the Seller loses. The best transactions are win-win. Don’t brow-beat the Seller or try to chisel him down to the last nickel. It’s a good way to end up without the business. If a Seller is not desperate, he/she will seldom sell to a Buyer that has been rude, obnoxious and disrespectful.
e. Sticking their hands in the broker’s pocket. Brokers earn every penny of their fees and then some. As brokers, we see great deals all the time and the Buyers we call for those special non-market listings are the Buyers in our database that are respectful of our time, appreciate our service and don’t try to steal our fees. If you want to be on that “Best Deal Call List”, keep your hands out of the broker’s pockets.
2. The second category of mistakes can be summarized as lack of preparation and basic laziness.
a. Do your due diligence. Is the business making the numbers that have been represented? If you don’t know how to determine that then get an accountant to review the numbers and explain them to you. Do you know what licenses are required and can you get them? Do you have an associate that has the required licenses for you?
b. Do you have the skills necessary to run the business? What skills do you need? Have you taken the time to identify them?
c. Do you have working capital? Do you have any idea how much working capital you will need? Three to six months worth is a good start. Maybe you have a line of credit set up as a safety net. Have you made any arrangements or even thought about what may be necessary?
d. Do you have a marketing plan? What will you do if the business starts declining in your second or third month of ownership? Have you thought about ways you can increase the business?
e. Do you have any plan at all? You don’t have to have a 100 page business plan; however, have you at least spent some time to really think about what you want to do with the business once you take ownership?
3. The third category of mistakes can be summarized as fear based reactions, misunderstandings and arrogance.
a. It is normal to get apprehensive and to want to make sure your investment is secure. However, no one can guarantee that you will produce the same as or better results than the previous owner. No one can guarantee what the economy will do. No one can guarantee that the customers will continue to come back forever and ever. There are risks involved in owning a business. If you are not willing to take any risks then business ownership is not for you.
b. All purchase agreements have contingencies. Contingencies give the Buyer the right to walk away from the transaction if certain terms are not met to their satisfaction. Contingencies do not give the Buyer the right to extend the due diligence period or extend the closing date until such time as the Buyer decides he/she is satisfied. There comes a point where you have to fish or cut bait. Make a decision. You either want the business or you don’t. In any event, take responsibility for your decision and don’t accuse the Seller of “breaching the contract” and threaten lawsuits simply because some contingency has not been met to your satisfaction. If it doesn’t work for you then walk away.
c. Buyers only buy businesses because they see that the business will benefit them in some way. One of the biggest mistakes a Buyer can make is letting the fear set in towards the end of the transaction and becoming incredibly arrogant as if they are doing the Seller a huge favor by taking the business off the Seller’s hands. Mind your manners. It will make the transition far easier and your training will go far better if you focus on the benefits you are gaining from the acquisition of the business. The Seller is not a charity and you are not doing him a favor. Show some respect and appreciation and the Seller will most likely surprise you by showing you additional aspects of the business about which you would not have thought to ask.
About The Author: Tawnya Gilreath is a business advisor at LA Business Pros. LA Business Pros provides business consulting, sales preparation, value maximization, acquisition targeting, due diligence assistance, transition planning and implementation, and business intermediary services for business buyers and sellers. They specialize in working with business owners and buyers to maximize the value of their business investments. Tawnya can be reached at 818-781-0082.