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

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Comments & Replies: 5     Views: 2817     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.


I agree that in many cases buyers are too impulsive and miss out on great opportunities because they skip out on the process, and instead of search for a great business, they search for a "great deal." Most of us were trained from a very young age to search for a great deal, after all, none of my friends brag about paying a fair price for something but always boast of getting a good deal.

However, with a major purchase such a business, I think its important to follow the correct process to find a great business instead of trying to find a great deal.

The correct process would be to decide how much business you can afford. Then search businesses in that price range until you find a business that you would be interested in. Then after thorough investigation, then craft an offer that works for you and your situation.

I recently had a buyer comment to me, "Well if he isn't open to lowering his price, I'm not even going to go look at the location." It seemed unconventional to me that the buyers expected a seller to lower their price for someone who hasn't even seen the retail location of the business yet. After all, why go through the process for something you aren't even sure you want yet?


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.


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

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