Home  >  Discussions  >  Are Business Buyers Too Impulsive And Impatient About Initial Asking Prices?

Are Business Buyers Too Impulsive And Impatient About Initial Asking Prices?

Share This Page   •   See All Discussions   •   See All Contributors   •   All New Discussions & Comments

Comments & Replies: 5     Views: 3207     Posted By: Raj Parikh  

Are business buyers too impulsive and impatient about initial asking prices? I feel buyers of businesses should first explore the small to mid-sized business being sold and then come to some conclusion on a potential price to offer - I would like to see what others have to say about this topic.

Topics: Business Brokerage, Deal Structures     Tags: buying a business, deal structures



I have noticed that several times, more often than not, a buyer starts negotiating or forming opinion on the asking price before exploring and educating themselves about the particular opportunity. Sometimes, I get inquiries stating that the asking price is too high or if the seller is willing to come down on the price - and this comes in before the buyer has even before signing the NDA and getting the complete business package.

A business buyer, if serious and genuinely interested in the business opportunity, should take the time to educate themselves of the opportunity and get a thorough understanding of the particular business in question - including taking the time to meet the broker or agent and either conduct a conference call or meet with the owner of the business. This will let the broker and the seller know that you are a serious and a qualified buyer. Business sellers will rarely respond to an oral offer if the offer is lower than the asking price, instead - if the buyer has taken the time to explore the opportunity, introduce themselves to the broker and the seller, makes a formal offer within reason along with an initial deposit, the seller is a lot more likely to respond and/or accept the offer - even if it is a little lower than the seller had initially decided to accept.

The price of the business is not always the deciding factor in a business sale transaction, there are many other factors that come into play like: deal structure, time, payment terms, buyer-seller relationship - to name a few.

I would love to hear from other brokers/agents, advisors, and consultants in the BizBenNetwork on this topic of buyers practicing more patience and finding out more about the business before making an offer on a business.


Before the financial crisis of 2008, sellers could ask for any price, and buyers who were pulling money out of their houses to buy businesses could afford it. I now recommend to my sellers, if they are truly interested in selling, to price it to sell. If it is priced way above what the market can bear then most buyers won't even make an offer.

Many seasoned business owners will come in at a similar price (within 5%) when they make an offer, regardless of what the asking price is. The novice buyer has a harder time evaluating the value of the business, and so I instruct them, that their offer although low may be countered.

The most important thing is to keep everything on paper. Its often based on the sellers motivation, because I have seen sellers accept quite less than initial asking price on the first offer, it all depends on their state of mind when they are presented with the offer.


I advise clients all of the time that if they find a "great" business and are paying in a market range for it that it's going to be hard to truly overpay.

Small business valuation multiples already take into account that there is a substantial amount of risk and a lot of work in buying and operating small businesses in general. I believe that even the best small businesses (those that should be worth more given their markets, history, infrastructure, lower exposure to risk, etc.) are being "penalized" when it comes to valuation just for being small businesses.

If you find one of those truly great small businesses that's priced in the same multiple range as a good business, you're already getting a "discount" just by the fact that the market doesn't efficiently value great small businesses the way it values great larger businesses.

To put it in perspective, I purchased a business over 15 years ago that I considered a "great" business. It had been operating 14 years, had been founded by gentleman who had won his university's Alumni Entrepreneur of the Year award, had never been down more than 10% in a given year and showed consistent long-term revenue growth. It also had a unique business model that gave it a substantial competitive advantage and was built around a core passion for being the "best" in its category.

While it was priced somewhat richly according to the market, it turned out to be one of the best investments I've ever made. Over the last 15 years the business has survived a fire that shut it down for three weeks, the Great Recession, and sale to a buyer that didn't work out and required us to buy the assets in foreclosure. Today the business is still going strong, nearly 30 years after it was founded.

If I had walked away because of the initial asking price I would have missed out on all that value. Instead, it probably took an extra six months to a year for the business to pay for itself after I bought it. Not a bad price to pay for greatness.


In my opinion no. Most Buyers when perusing a business opportunity look straight at the bottom line. "What's my net" and "can I feed my family with this business." If the business doesn't look strong enough for a Buyers needs, then pricing comes up and they calculate how they can make it work themselves. Price is only determined on the Buyer's perception and what the market will bear.


  Helpful Resources To Assist In Selling And Buying California Businesses

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

Why Deals Fall Out: Unrealistic High Asking Prices Are Usually The Reason

The unfortunate truth is that approximately 50% of all small business sales transactions fall out. While failed transactions can happen for a many reasons, Peter Siegel, MBA (BizBen Director & Business Purchase Financing Expert) discusses the main reason deals fall through; steep asking prices.

Sellers Ask: How Long Should I Wait For The Buyer To Do Their Due Diligence?

Business sellers & buyers ask the question in the buying process-how long should I ask for due-diligence when buying a small business? The answer really depends on several factors. They include: type of business, demand for the business, complexity of the business. Advisors weigh in on this topic.

Selling A Business Without Getting Sued: 5 Tips For Business Sellers/Brokers

How do I sell my business without getting sued, isn't a subject just for discussions with lawyers. A seller can take some precautions to reduce potential legal problems. Peter Siegel, MBA Founder Of BizBen and BizBen's ProSell Program discusses this topic for business owners/sellers and brokers.

4 Reasons Why Business Brokers Do Not Cooperate With Other Brokers & Agents

Despite challenges in the business for sale marketplace, some of the business brokers who make a living by facilitating a deal between buyer and seller are known to stand in the way of a completed transaction because of some outdated ideas. Too bad they put greed ahead of the needs of their clients.

Is There Such A Thing As Paying Too Little When Buying A Small Business?

We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.

Tips For Faster SBA Loan Approvals For California Small Business Purchases

In this article on BizBen, business purchase financing advisor and SBA loan broker, consultant Peter Siegel (Business Purchase Financing Expert/Advisor & the ProBuy Program Director at BizBen) at 866-270-6278 shares his views of getting SBA loan financing faster for business purchase financing.

Financing Advice: Showing Add Backs To Get Business Acquisition Financing

When seeking business acquisition financing, it helps to review a seller's addbacks as a source of funding to service the debt service. But explain them correctly. Peter Siegel, MBA business acquisition financing expert and advisor at 866-270-6278 covers this topic on financing a business purchase.

If You Plan To Offer Seller Financing: 3 Things Owner Sellers Need to Know

When selling your business, offering seller financing is a great way to help your business standout from others on the market and it is also a good strategy to consider that can help you close a sale. Peter Siegel, MBA (BizBen ProSel Program & Financing Expert) explains. Reach him at 866-270-6278.

See All News, Tips And Events

Willard Michlin Due Diligence Services
SBA Loans For Gas Station Financing
Chuck Post Laundromat Industry Expert
Steve Erlinger Coin Laundry Broker


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million




BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2017, All Rights Reserved

                       
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Sellers Ask: How Long Should I Wait For The Buyer To Do Their Due Dilige...
Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Busin...