When buying anything of high value and significant importance, it’s necessary to learn value. This takes a period of time of looking at and evaluating similar businesses. Once this process has been completed, it makes sense to start making some offers.
Experienced intermediaries are available to provide someone in the middle, between you and the seller or seller’s agent. Such an intermediary brings negotiating, skills and an understanding of the emotional issues of the parties, which can make all the difference in successfully acquiring the target company. This service is typically provided at no cost to buyer – the intermediary’s fee (commission) is typically co-brokered with the seller’s agent.
Be prepared before you start making offers. It is advisable to provide your intermediary with a copy of your bio or résumé, as well as a pre-qualified lender letter. Your intermediary can suggest who can help you accomplish this task. In a competitive buying situation, this preparation can make the difference in which buyer moves forward in the process and successfully acquires the target business.
In the current buyer’s market, if you want be successful at buying a quality business with an owner benefit of $300,000 to $2 million, be prepared to pay a notch or two above what you would normally consider fair market value (FMV or price).
By paying a price on the high side, you often can trade for more favorable terms, such as a seller stand-by note to minimize the cash injection required and increase cash flow or an earn-out of some type. Your intermediary can help you with alternative strategies to consider.
This type of scenario is also common with residential real estate in a similar seller’s market. The buyers that succeed at getting the most desirable houses are typically paying cash or have a pre-qualified letter from a lender, are willing to pay a notch or two above FMV, and are prepared to move quickly when they find a suitable target.
If you are thinking of selling, be aware that the current seller’s market won’t last forever. As we continue upward on the growth side of the business cycle, with low interest rates and funding available and low inflation, it is only a matter of time until we peak and the cycle starts down once again.
When the baby boomers finally decide to sell and the business cycle starts going downward again, the scenario will quickly change to a buyer’s market. If you are a seller wanting the best price possible, you will need to wait for the next upturn of the business cycle, which could take five years or more. Timing is everything.
As a seller or a buyer, if you would like a confidential conversation about how to prepare, please contact me at 954-579-4687 or firstname.lastname@example.org. My LinkedIn profile is: http://www.linkedin.com/in/dolansales.