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Sellers Motivation For Selling A Business - Does It Matter?

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Comments & Replies: 5     Views: 5445     Posted By: Willard Michlin  Willard Michlin, CPA, Due Diligence Services



Topics: Buying A Business, Selling A Business     Tags: for sale by owner, open listings, pocket listings, selling a business



Why would an owner of a business want to sell his business?

The answer is simple on the surface. A) He is not making enough money and wants out of the business and would like to recuperated some of his loses while he leaves the business. B) He is making a very good profit and he feels that this is the best time to maximize his return by selling a great business for top dollar; allowing him to get between two years and five years of expected future profit without having to continue to work.

Since the activity of buying and selling businesses is “buyer beware” it is critical to know if the seller is in group one or group two.

I do not find it surprising that buyers almost always ask the seller what their motivation is selling. I only find it amazing when a buyer believes what the seller says. It is a seller’s job to present his business in the best light. It is the buyer’s job to find the negatives to use in negotiating a lower price.

My question to other BizBen Users - what reasons for selling do you feel owners put their business up for sale? In your opinion does it matter what the reason for selling really is?


Of course, the buyer won't be told about the illness, the disability, or the divorce, if those are the motivating factors behind the decision to sell; but, those life incidents are relatively unimportant to the scrupulous buyer determining the value of the business. The buyer should make an evaluation of the business based on its intrinsic value, its past performance, its potential for future performance.

Now, when it comes to the price being offered, the buyer really does need to discern just what the seller's objective is and possibly discern his true motivation. I have had a number of sellers who start out selling their business at just the right time--it's profitable, sustainable, not dependent on the owner, and growing. They want "top dollar;" but, after some time on the market we discover their true motivation--they just want "out," and they're willing to make concessions to do so now rather than some indeterminate time in the future. What kind of concessions? Lower price, increased seller financing, more training or transition time from the seller, etc.

This is where the broker can be a very valuable intermediary in helping both sides understand and articulate their true objectives and negotiating an agreement that is advantageous to both buyer and seller.

Contributor: Business Appraisals, Valuations Advisor

There are other possible reasons for a seller to sell his business. He may be burned out or ready to retire. These are good reasons as in both cases the owner may not be running the business efficiently and there be potential for a new owner to grow the business. The burned out seller is more likely to sell his business at a lower price. Does it Matter? Yes, you may get a great deal.


Bob's right... discerning the REAL reason for selling a business can be very valuable to the buyer. And, having a plausible good reason for selling a business can be valuable to the seller. Needless to say, "the best time to sell, is when business is doing well."

The tired, burned out, "past the prime" seller can provide the buyer with a great deal; but, such a seller can have already done irreparable damage to the business. The buyer needs to be meticulous in due diligence to be sure that this "great deal" isn't a "sinking ship."


Yes, I agree it does matter. I have approached sellers to sell their business and had the response, "for the right price, sure I'd sell". I do not take those listings because they are not mentally prepared to actually sell and they'll sabotage their own deal at some point. Only on strategic buy side side approaches will that actually work. The deal has a good chance of happening if you have a motivated buyer and a motivated seller.

Replies To This Comment
 
Christina makes a good point and I'll expand on it: Sellers who are not serious about selling complicate the market, waste buyers' time and energy, and keep brokers from spending their time with sellers who are serious.



  Helpful Resources To Assist In Selling And Buying California Businesses
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.

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.

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.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.

Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

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 805-428-2063.

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.

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.


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