It happens time and time again—a business owner who is busy working on making money gets a call or email from someone saying that they are interested in buying the business. They weren’t looking to sell but they receive this unsolicited offer out of the blue. It’s easy to get distracted, take their mind out of the business and wonder if maybe this could be their golden ticket. “They want to buy my business, just like that?” the owner will think to themselves, gleaming with pride. “Maybe I should do this. I’ll just listen to what their offering and see where it goes.”
Before you go any further, I’d like to tell you why business owners should not try to “DIY” (do-it-yourself) when it comes to engaging in a discussion around an unsolicited offer.
Business owners always need more of this and there never seems to be enough. There is an opportunity cost to exploring this potential so make sure you have the bandwidth in your day to get distracted. You are already busy and working 50-60 hrs. a week, you have payroll on Friday, a bid due, a project to complete, and employee evaluations to finish, just to name a few items on your To Do list. Fielding an unsolicited offer will take time, you have never been through this and you will need to focus. Time and money are inter-related so if you give up your time, make sure you understand it is costing you money.
One of a Million
Usually, only a sophisticated buyer will bring an unsolicited offer. By that, I mean someone who actively seeks to purchase businesses on a regular basis. The sophisticated buyer could be an individual or a larger company. Regardless of their profile, they’re doing something they know how to do (purchase a business) and asking you to do something you don’t know how to do (sell a business). You’re in their comfort zone, not yours. These buyers will play the game of telling you everything you want to hear, with no mention of price, terms, or the specifics of your business. That’s because their pitch is pretty much scripted. They’re saying the exact same things to many other prospects. You’re not one in a million, you’re one of a million.
If the discussion does make it to the numbers, you are in over your head, my friend. A buyer who knows they’re dealing with an owner and not a savvy seller can skate a number past you with little to no context. Is the sale price in cash? Will there be financing (a.k.a. debt) involved? What will you make from the sale after tax? You don’t know what you don’t know, and you can’t find out what you don’t know to ask. Before you realize it, you’re spending hours a day exploring an avenue that takes you completely off course from where you were headed before you received that phone call from so-and-so offering to buy your business. Even a smart decision like getting your financial team involved can be counterproductive. You have all of these people spending months putting together reports and documents…for an offer with no terms or price!
Lack of Leverage
Business owners truly believe that buyers will pay money beyond fair market value for their business. The problem, however, is that the only way you can realistically negotiate a price higher than fair market value is if you have more than one buyer. With an unsolicited offer, you do not have that second buyer to bring the first buyer into a bidding war. The lone buyer is looking to buy as low as possible—and has all the leverage to do so.
The Smarter Route
Get help. If you have never climbed Mount Kilimanjaro, never performed open heart surgery, never spoken in front of the Supreme Court, I implore you to treat fielding an unsolicited offer for your business with the same respect and humility as you would these feats. You need training, you need a guide and you need to understand what you’re getting into before you get too far down the path.
While it’s extremely rare for an unsolicited offer to pan out, the idea is understandably exciting for any entrepreneur. Contact Exit Consulting Group—regarding an unsolicited offer you have received or simply to explore the possibility of selling your business at some point in time—so we can equip you with the knowledge, mindset and roadmap to exit successfully.