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

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Comments & Replies: 6     Views: 4089     Posted By: Business Broker  

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


Contributor: Business Broker, Inland Empire Area

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.

Contributor: Broker/Consultant: Elderly Care Services

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.


The asking price is important, but the savvy buyer knows that negotiation about price can only make sense after the buyer has a thorough understanding of the entire business opportunity-- the tangible and the intangible, the objective and the subjective, the actual and the potential. To focus initially on price is, to me, a "red flag" that this prospect is not really a serious or knowledgeable buyer.


  Helpful Resources To Assist In Selling And Buying California Businesses
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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.

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Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

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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.

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.


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