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Potential: One Of The Most Harmful Words In Business Sales


Potential Worst Word In Business Sales

Without question, it's one of the most misused and abused words in business sales and commercial real estate. There are few among us who haven't been completely annoyed by proclamations about the POTENTIAL of a business that's on the market. In investment real estate circles, seemingly every other brochure touts UPSIDE POTENTIAL as the reason buyers are cordially invited to overspend on a rental property.

The term gets people riled up because it's usually untrue. Or unprovable. Or the chief architect of unreasonable expectations. Without the guiding hand of an experienced intermediary, owners often board the Potential Train, bound for nowhere, in search of a turnip truck buyer who never arrives.

Businesses don't trade on potential. A buyer may indeed see some unrealized potential down the road through improving management, marketing or sales efforts. But buyers aren’t in the business of rewarding sellers for work they haven't done.

Business broker Ted Burbank wrote a terrific book nearly a dozen years, "How to Become the Best Business Broker in Town," that made a lasting impression on me. One excellent point he makes is the distinction between potential and opportunity. The two words sound quite similar but he astutely points out the tremendous differences for business buyers and sellers.

"Owners are unaware of the damage inflicted on their business's value by emphasizing its potential. It’s a natural and innocent mistake virtually everyone makes." He compares it to a schoolboy whose teachers and parents constantly talk about Johnny's potential - and how he's not achieving it.

Buyers will likely see all that potential but they're not about to pay the seller for it. Why should their hard work down the road go into the seller's pocket today? But here’s what they will pay for - opportunity. Burbank writes "It's perceived differently. Opportunity has already been created by the seller. It's there. You created the opportunity and are willing to let the newcomer reap the advantages of your hard work. Any reasonable person must be compelled to compensate you for the opportunity you have created. It's only right."

Prices based upon opportunity are always superior to those based on potential. The buyer who sees the most opportunity pays the highest price. The buyer who sees a seller demand a high price based on potential typically runs the other way.

Brian Loring, CBBAbout The Author: Brian Loring has been a broker since 2005, closing more than $150 Million in business and commercial transactions. He focuses on the automotive sector, providing unparalleled service to owners of auto repair, body, smog, tire, brake and lube shops, car washes, and trucking companies in the LA and Ventura County areas.


Categories: BizBen Blog Contributor, Business Valuation Issues, Buying A Business, How To Buy A Business


Comments Regarding This Blog Post


The long and short of the "potential" issue is simple:

Businesses are worth what they are worth today, not what they may be worth some time in the future because of a buyer's efforts or investment of time, talent, and treasure. That incremental value belongs to the buyer, not the seller.

Businesses with "potential" don't command more money because they have potential; rather businesses with potential are the ones that sell. If a business doesn't have the potential for sustained profitability, it most likely will not sell at all.


It's often been said that buying and selling is an emotional process, large ticket items specifically such as a home or car, but buying a business can be cold and analytical because of how much is at stake, especially for the buyer. Buying a business should be well thought out, because if done incorrectly or with haste it can spell financial ruin. A seller may have invested many hours and unreturned investment to get the business off the ground, and will try to get that back from the purchase of a buyer, but a buyer can only pay what the business is worth, and so "potential" is a word that can fall on deaf ears, because in the buyers minds, if the seller wanted to do it then it would have or should have been done, if they want to be rewarded for it.


  Helpful Resources To Assist In Selling And Buying California Businesses
William Park, Business Broker - Southern California

Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.

Bob Baumgarten, Business Broker: Orange, LA Counties

National Business Brokerage is a full service brokerage company that has been serving buyers and sellers of Southern California businesses since 1994. We are dedicated to providing the highest standards of professional service for our clients. Phone Bob direct at 949-588-8727.

Jack Oh, Business Broker - LA, Orange Counties

Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

George Lanza, Business Broker, At Plethora Business Sales

Plethora Businesses, a division of A Premier In Services, Inc., is a Business Intermediary Consulting Firm headquartered in Orange, California. Plethora specializes in the listing and sale of small and medium sized private businesses.

Michael Davidson, Business Broker - Southern California

Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.

Ryan Clark, Business Broker, Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan at 310-652-8353.


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