Back-Up Offers: Crucial When Buying Or Selling A Small Business


Back Up Offers When Buying Or Selling A Business

An often overlooked aspect of selling (or buying) a small business is taking back-up offers during the entire process of selling (or buying) a business. Most sellers (or buyers) don't realize that over fifty percent of all deals/contracts fall out for one reason or another when selling/buying a small business - could be a landlord issue, business purchase financing falls out at the last minute, or plain and simple either the buyer or seller gets cold feet.

In all of my online webinars, daily ProSell/ProBuy/ProIntermediary consultations, weekly Friday morning online sessions on BizBen's "Office Hours" and consultations with brokers, agents, owner/sellers and business buyers I emphasise not only the importance of taking back-up offers to sellers but also (for business buyers) writing back-up offers on existing businesses in contract - even if they (sellers) are far along in the process - only because I have seen so many deals fall apart for in the last stages due to so many different reasons (see the most common reasons below - Other Reasons Why Deals "In Play" Fall Out Over 50% Of The Time).

In fact in most instances I encourage business buyers to write multiple back up offers on multiple small businesses being sold - if they are truly interested/serious in pursuing a small business purchase. The reason for this is that many business brokers and agents these days don't get financials and/or recent business tax returns up front from their seller clients and then post their client's listing for sale without confirming key/critical financial data - important data to make an informative decision if the small business being sold/purchased is priced fairly and the deal structure makes sense. At this time, this is the number one reason deals fall out of escrow and during contract.

Other Reasons Why Deals "In Play" Fall Out Over 50% Of The Time:

- Partners Or Advisors/Consultants Weigh In - Not Positively On The Deal
- Landlord Problems - Rent Increase, Selling The Building, Etc.
- Last Minute Coldfeet By Either The Seller Or Buyer
- SBA Financing Or Business Purchase Financing Drags Out Or Falls Through
- Negative Or Unexplained Data In Phase l and/or Phase ll Due Diligence Feedback/Updates/Revisions
- Unexplained Material Changes (Usually Financial) With The Business Being Purchased
- Personal Changes With Either The Seller Or Buyer - Health Issues, Financial, Marital
- Key Employees Or Manager(s) Decide To Leave Due To The Sale Of The Business

Again, when selling a small business ALWAYS encourage back-up offers from potential buyers up until your deal closes and you have the closing check from the escrow/bulk sale service. With this strategy sellers can keep buyers on a "tight leash" during the deal process and if buyer "A" happens to back out or takes too long to produce documents or potential financing the seller can move on to buyer "B" or "C".  When seeking to purchase a business don't be timid about submitting multiple back-up offers on multiple deals - one of them is bound to open up to other potential buyers!

Important point: Don't burn bridges with brokers and agents - make sure you keep them aware of any updates on any offers on any deals moving forward if they start getting serious and you are "promoted" to a lead buyer. If you end up buying one of the businesses you have an offer on - make sure you contact all brokers, agents, sellers and let them know you are now not a contender on their deal (back-up offer - or future deals).

If all sellers and buyers used these back-up offer strategies we would have a higher success rate of small businesses being sold and a much more efficient marketplace for both sellers and buyers of small businesses!

Do you need assistance with buying or selling a California small to medium sized business? Need a referral? Some advise? Call me about your situation - I can be reached direct at 925-785-3118 at BizBen.com

 
 
 
 
 
 

Categories: BizBen Blog Contributor, Buying A Business, Deal And Escrow Issues, How To Buy A Business, How To Sell A Business, Selling A Business

Contributor:

Peter Siegel, MBA
Areas Served: All Of California
Phone:  925-785-3118 Cell, 925-785-3118 Text
Founder Of BizBen.com (since 1994). I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I consult daily with buyers, sellers, and brokers daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.

Comments Regarding This Blog Post


Is writing a back-up offer worth the time when buying a business?

The short answer is yes, but a buyer should take certain things into considerations regarding the likelihood that their back-up offer will be in first position, if in the event the first deal goes sideways. Something many potential buyers find out when contacting business brokers, is that many continue advertising a business even after it has gone under contract. Business brokers should change the status from available to under contract, but many don't, because of frequency that deals fall apart or never really come together in the first place.

Things to consider:

1. Offer accepted vs. In Escrow -- An offer can be accepted between the buyer and seller, but that often entails it's still far from being a sure thing. Once the buyer and seller have agreed on price and terms, then the real work begins, because that's when the buyer must verify the seller's financials and income. The standard time allotted to a buyer for due diligence can be between 10-14 days, and during that time, the buyer must fully satisfy themselves the business is doing what the seller has previously disclosed. If a broker tells a potential seller, "We currently have an accepted offer.", and it's not yet in escrow, then I would recommend the buyer to write a back-up offer because there is a good chance something might happen. As a buyer, if I found out a previous buyer backed out during the due diligence period, I'd probably be extra cautious, and inquire why that happened, did they see something I don't?

2. Removal of contingencies -- When contemplating about writing a back-up offer, and the business is in escrow, one should ask where exactly the first position deal is in the process. If the business has a liquor license, has the posting gone up in the window, and is the application working its way through the ABC process? Has the lease assignment been approved by the landlord? If the buyer who is in escrow needed to get a loan, has it been approved? Once the due diligence process is done, and the contract goes to escrow, and the lease is going to be assigned, then the probability that the deal will be completed increases. If the contract just went into escrow, then of course, the likely that something could happen, and a back-up offer could slide in its place is more realistic.

3. Ask, are there any other back-up offers? A potential buyer should ask how many other back-up offers are there. The broker shouldn't disclose the terms of the other offers, because they have a fiduciary reasonability to the seller if they also represent them, but they probably can tell you where your back-up offer stands amongst other back-up offers, either 1st position, 2nd, etc. If there are multiple offers and the original deal goes sideways, then the broker will usually present all offers at the same time, so don't be too discouraged if you are writing the third in position because you may have the strongest offer, and chosen by the seller.






  Helpful Resources To Assist In Selling And Buying California Businesses
Janet Carrera: Escrow & Bulk Sale Service - 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.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Helen Yoo, New Century Escrow - Escrow Services In 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.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Elizabeth McGovern: Escrow Services - San Francisco 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.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

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.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
How to Sell Your Small Business: Tips For Selling Your California Business

Peter Siegel, MBA - Lead Advisor with the BizBen.com ProSell Program discusses critical steps to prepare a California small business for sale including: which documents will be needed, key advisors to have involved, pricing the business, and how to attract the right business buyers to your listing.

Key Tax Considerations In A Deal: Deciding Between An Asset vs A Stock Sale

There are a number of the critical tax-related factors which should be reviewed by a party with their legal and tax advisers in determining the best structure for a sale transaction, i.e., whether it should be an Asset Sale or a Stock Sale. Attorney William Ziprick, Esq covers this topic.

Thinking Of Selling My Business: What Factors Create Value And Drive Price?

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.

Brokers Not Returning Calls About Listings: How Do I Get Them To Call Back?

There can be many reasons why Brokers take awhile to get back to potential Buyer & to other Brokers and Agents if they are cooperating on the listing. Broker's reasons include: unprofessionalism, too busy, the listing is no longer available, the buyer doesn't sound viable, etc. We discuss them all.

Why Isn't My Business Selling? 6 Great Questions To Ask Yourself For Answers

It can take months, sometimes longer to sell a small business. Here are 6 questions from Peter Siegel, MBA (Business Purchase Financing Expert, ProSell Program Advisor with BizBen) at 925-785-3118 to ask yourself to help you determine why your small to mid-sized California business isn't selling.

Should A Buyer Be Allowed To Operate A Business Before The Close Of Escrow?

Business buyers, brokers, owner/sellers all ask this question at some point. So I decided to ask some of the top Intermediaries in the California marketplace what they thought of the idea. Most of the ProIntermediaries on BizBen agreed with me on taking early possession before the close of escrow.

Buyer Asks: Seller Doesn't Have Recent Financial Figures: What Should I Do?

The owner selling the business doesn't have recent financial information or documentation but insists revenues are increasing. Should buyers believe the seller? What should buyers do in this situation? ProIntermediaries on BizBen answer the question of verifying seller / owner's financial claims.

Need Financing To Buy A Small Business? Business Purchase Financing Details

What are actual adjusted net earnings (cash flow) of a small business being purchased with business acquisition financing? That's an important amount that lenders need to know. Peter Siegel, MBA (BizBen.com's Lead Advisor - ProBuy/ProSell Programs) reviews this concept with BizBen Blog readers.


Escrow Services Diane Boudreau-Tschetter
Steve Erlinger Laundromat Broker
Tim Cunha Business Brokerage
Michael Brewer, ABC License Consultant
Facebook
Twitter
Linkedin
Vlogs and Podcasts
California Educational Events Buying And Selling Businesses
New Postings Reports On BizBen Sign Up
BizBen ProSell Program
BizBen ProBuy Program
Instant Email Alerts On BizBen



Clost Login


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:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Financing A Business Purchase With Limited Or No Real Estate Collateral
Read More News
Owner Asks: Why Is A Business Sale Kept Confidential? How Is That Done?
Read More News