Lance Hood: So how do I learn to understand the attitude of every for sale by owner seller?
Richard Parker: The first thing to know is the sort of for sale by owner category is less prominent in business sales than it is in real estate. But having said that, most people who decide to sell their businesses on their own have what I call "the know-it-all attitude."
Business brokers and other intermediaries or consultants inundate small business owners for listings. So business owners have every opportunity to hire one or utilize an outside advisor, but they've decided that they know better.
Now keep in mind, selling a business is infinitely more difficult than selling a house as is buying it because each business is a living, breathing, unique entity. So what you see is in most smaller one-man show companies for example you get this attitude of an owner of sort of like, "I know better." But it's also a recipe for disaster.
What happens is they become - the sellers become the mirror image of the buyer who is not prepared for the process. And what happens is you get a buyer who's not prepared. You get a seller who's not prepared. It's like two blind guys going hunting and the chances are they're going to shoot each other.
Sellers have no idea what information to prepare, how to protect themselves, what buyers need to know, or basically how any of this works. And most cases they don't make it work. And then you couple it with a buyer who may not be prepared.
So the for sale by owners what you want to do with them is understand that they've got this attitude from the beginning and you just want to tread lightly initially because chances are they're going to be one of these know-it-all people. Because they have that attitude and they haven't properly prepared you're going to have to bring them along believe it or not. The buyer is going to have take them through the process if they don't engage the right professionals.
So in those cases even though there's some gems of businesses that you can buy that are for sale by owner and get them way below market price, you have to as the buyer have the wherewithal to be able to take them through the process. And not only take them through the process successfully, you want to take them through the process with them not thinking that you're misleading them. All the while they have this know-it-all attitude, and you can do that easily as long as you know what's involved in the process. It comes down to the buyer's education as well.
Lance Hood: You talked about walking a for sale by owner through the process of buying their business, so how are you able to do that so that they'll trust you enough to let that happen?
Richard Parker: That's a terrific question and I would imagine that the first thing someone my think about is, "They're never going to believe me." Well one of the things that I like to tell people when it comes to buying a business they need to understand something. If a buyer and seller trust - I'm going to start with sort the end in mind here. If a buyer and seller trust each other and the seller wants to sell their business and the buyer wants to buy a business you can't stop them from getting a deal done.
So with that in mind when you have someone who is a novice to the process what you need to do is go into this as a discussion, as a casual conversation. As an opportunity to get to know somebody because if you're going to be going through this process with a seller with the idea of acquiring their business you need them to open up to you over time because that's the only way you're going to get good information from them.
If the parties are at each others throats chances are a deal will never get done but as you said, trust will never be established. So what I always suggest is for example, even though you may go to meet a seller and you have a series of questions to ask them, it's got to be conversational. You've got to trust each other. It's got to be something where you get to know each other.
So in situations especially where there's a for sale by owner and they may or may not have this attitude and they seem to be unprepared just talk to them. Just have this conversation related to their business. What is good about their business? What they like, what they don't like. How do they see themselves growing the business? What are some of the challenges? What are their agenda for selling and how did they arrive at the decision to sell? And I would keep all these sort of on the surface questions as opposed to digging right in and saying, "How much are you asking for the business? What are your terms?" And, "Your valuation's completely out of line."
That's not going to establish trust There's always going to be an element where they don't trust you. The same way there's always going to be an element of a buyer that doesn't trust the seller. That's natural. But it really is getting into the process and getting comfortable with one another. And it may take longer. It may not be a case of you going in and asking 36 questions, getting all the answers, doing some quick research and find yourself in a position to make an offer. This could take a couple of months of just conversations.
Never let them feel that they're operating with a gun to your head. Also having said all that, it's also recommended that you would say to this person, "Look, you're new at this and I'm new at this. My goal is buy a business and a good business. You seem like a nice a guy. You're goal is to sell a business and get the best price and terms possible. Do you think it makes sense for us to potentially bring in either one party that could assist us, or our own parties, our own representatives whether they be attorneys or business brokers, or some sort of intermediary, to assist us?"
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