When new brokers join my firm, I am often asked by them how do I do the volume of deals I do? To me the answers are very intuitive but in reflection I thought about what prohibits deals from getting done….what in effect is the critical factor that kills a deal?
To me the answer is perspective. Assuming a ready and willing buyer and a ready and willing seller the thing that has always blocked deals from getting done is the perspective the buyers VERSE the perspective of the seller. Take note of the VERSE.
I use VERSE because it is adversarial…so often in business sales buyers, sellers, brokers and other advisors come to the deal as if it were combat….as if the objective was to screw the other guy and get the best deal. In this blog I will outline the differing perspective buyers and sellers have on a variety of topics that are components of every deal……this will hopefully demonstrate the insanity of the combat approach to deal making…and hopefully open your eyes to understand and respect the other parties position because if you don’t, you wont do a good deal.
1.PRICE:
Buyer: “This business is worth half of the asking price, the seller is smoking dope!”
Seller: “MY business is worth 5 x the revenue or at least a million dollars because that is what I need to retire.
2.REASON FOR SALE:
Buyer: “If they are selling there must be something wrong or why don’t you just hire someone to run the business if it makes this much money for you?”
Seller: “I cant trust someone to run it like I can or I cant find anyone talented enough to run it like I do. I need the money to retire”
3. EQUIPMENT:
Buyer: “I am going to have to replace everything in here this stuff is crap!” New Equipment to replace all this will cost $100,000.
Seller: “My equipment is awesome….yeah the outside is rusty but I just did an engine overhaul” ” I can go on craigslist and get used stuff for $30000.”
4. SELLER FINANCING:
Buyer: ” I want to put down 20% and let him finance the rest and ill pay him from the profits after all I was VP of Sales for XYZ corporation!”
Seller:” I don’t want to finance anything he can go to a bank (have to laugh at this) or I will finance the value of the equipment….his experience at xyz means he never put his own money on the line”
5. SIGNING PERSONALLY ON A NOTE:
Buyer: “My lawyer says I don’t have to”
Seller: ” I need a personal guarantee and I want liens on his house, his cars his wifes house his wife’s car etc. etc. etc.”
6. EMPLOYEES:
Buyer: “I know I just moved to this town but his employees are useless and paid too much ….I can get better and cheaper.”
Seller: “My employees are the best and the brightest…they are my greatest asset and without them the business will fail”
7.CUSTOMERS:
Buyer: “Those AR terms are ridiculous, I need the money in net 15 or I am going to raise your rate 50%….Who cares that you are 30% of my gross margin….when I was VP of Coca-Cola I owned the market”
Seller: “I have great customers….I have never raised my rates in 20 years even though my labor, fuel and overhead have increased 20% in the last 5 years…..yeah I know I only have one customer but my hotdogs are the best in the world.”
My point here is that there is middle ground….and as a broker my job is to get the parties to see the middle ground…..there no bargain deals in business sales…..good will is a variable comprised of intangibles and must be transferred and respected for you to be successful