About a year ago, I was helping a client sell their business, and, at the same time, I put my house on the market for sale by owner. In both deals we found the perfect buyer, but additionally, It was interesting to see the correlations between selling a business and selling a house — specifically, what it is that makes buyers stand out from the competition.
Having been on the buy and sell side of both business and real estate transactions, I’ve spent decades better understanding buyer and seller psychology in ways that help me successfully close deals.
As I navigated selling a house and a business simultaneously, it struck me how interconnected the worlds of business and real estate can be, especially from a seller’s perspective.
For instance, in the business deal I was handling, we quickly received several offers, but surprisingly, the seller didn’t choose the highest bidder. Instead, he went with a buyer I had recommended – one who was also favored by the lender. Ultimately, this decision wasn’t about the money or my persuasion skills; it was about confidence in the buyer’s ability to swiftly close the deal.
If you think you can simply throw money at a deal to get it done, you’ll be shocked to learn that many times, that’s not enough. However, there are other important factors you can work on that will get your offer accepted.
Today I want to discuss the top five elements you need to have to acquire a business and beat the competition. They are:
1. Confidence
A lot of times, I will tell buyers that what it is that you bring to the table in terms of selling yourself is confidence and speed to closing.
In the business deal I was working on, those factors were not absent. We talked to a lot of buyers, and some of them were very timid, uncertain, and, overall, didn’t seem sure they were interested in the business.
This particular buyer came to the table with the perfect background and resume. Additionally, she understood the nuances and risks of the business, and they didn’t phase her. She was still comfortable with what those risks were, and she was confident she was the right person to tackle them. I talked about this growth mindset in chapter three of Buy Then Build:
Successful acquisition entrepreneurs turn the traditional search process upside down. They understand correctly that the building blocks of how to build a company and a vision don’t come from what’s “on the menu,” but from aligning their attitude, aptitude, and action, and leveraging that alignment toward a specific opportunity.
That said, she wasn’t overconfident, which is another mistake buyers can make. If you present yourself to the seller as a buyer who sees running the business as an “easy” endeavor, the seller will think you’re out of touch and won’t have confidence in your ability to see reality for what it is.
Regardless of the business, there are always risks and always an uncertainty the owner needs to navigate. It’s important to present yourself as someone who is confident but understands the risks ahead. As I wrote in Buy Then Build, “In business ambiguity reigns. Entrepreneurs need to be able to deal with managing ambiguity and a changing landscape; the best ones do this extremely well.”
In this deal, the buyer captured the CEO mindset required to give the seller confidence in who he was selling the business to.
2. Ability to Close Quickly
One of the biggest factors a seller considers when putting their business up for sale is the timeline. One of the most common questions I get from clients is how long it will take me to sell their business (another one is: when’s the right time to sell?). The answer is largely dependent on buyer demand but also on the individual buyer whose offer they accept. There are a few things at play in the acquisition timeline:
- Cash versus financing: Cash is king, as they say, and business transactions are no different. When working with an SBA deal, SBA financing can take anywhere from 45-90 days. However, you can cut down on the timeline significantly if you can bring all cash to a deal. Other means of creative financing, such as earnouts and seller financing, also don’t require a lengthy timeline to be incorporated into the deal structure, as those are simply a matter of agreement between the buyer and seller and, in turn, verbiage in the APA to reflect that.
- Due diligence process: Due diligence is the first major part of the acquisition process once a seller accepts your offer, and this phase can vary in timeline, depending on how quickly the seller is able to get you the documentation you need and how quickly you (or your due diligence team) are able to verify everything.
One way you can reassure the seller that the due diligence process won’t run indefinitely is to put an expiration on the due diligence timeframe in your offer (e.g. 30 days), at which point the seller has the right to place the business back on the market.
- APA negotiations: APA negotiations are another variable in the acquisition timeline. If there are disagreements between the buyer and the seller on the terms of the sale, negotiations can drag out, especially if the attorneys involved excessively hone in on the risks versus having a more cooperative approach to get the deal done. (Again, choose your team wisely.)
To offset the time it will take to conduct APA negotiations, make as many of the terms of your deal clear in your offer. The purchase price is just one element you can include – you can also mention how long you’d like the transition period to take and any other terms you can think of. Coming to an agreement on as many things as possible up front will give the seller a sense of clarity on your intentions and will make it easier for him or her to decide to move forward with you.
- Buyer’s urgency: Everyone focuses on the seller’s motivations for selling the business, but what about your motivation? Maybe you’re a full-time searcher and ready to get started with a business and bring in full-time income again. Having a sense of urgency about getting the deal done and being transparent about why you’re ready and excited to get started as the new CEO will give the seller reassurance that he or she isn’t the only person who wants to close the deal.
If both parties want to get to the finish line quickly, sellers will be comforted knowing your intentions are aligned with theirs and will be inclined to work with you knowing that you also have buy-in.
3. Emotional Connection
The quickest way to get a seller invested in you is by showing him or her that you have buy-in.
Unlike selling or buying a house, a seller wants to know that the buyer is emotionally connected to the business. It helps reassure the seller that the buyer won’t lose interest as they go into due diligence, possibly financing, and other painstaking elements of the acquisition process.
Additionally, rational or not, a seller usually views the business as his or her baby, and they want to entrust the business to someone who will be equally invested in the business or, in other words, see personal value in the acquisition:
Source: Executive Board
A seller would consider a disinterested buyer to be a risk – someone who runs the seller through a heavy diligence process and then doesn’t actually close, because they’re not necessarily in love with the business. The buyer hasn’t seen or doesn’t appreciate the indelible impact of the business on its customers, happy employees who have worked at the company for years, or any number of unique factors that make a business special and create that sense of emotional connection.
When I was selling my house, I met a number of buyers who were single guys that wanted a bachelor pad with a pool, but they weren’t ideal buyers. There were going to be empty rooms in the house, and even if they say they wanted the house, they wouldn’t be able to maximize the purchase. The same went for buyers I talked to out of state who had no intention of seeing the house in person – they hadn’t seen it, so there was no strong emotional connection to the house.
On the other hand, I knew the family that wanted to move in would heavily utilize the house and the neighborhood and get integrated into the local communities and schools in the area. This family envisions a rich life that gets them emotionally connected to the house and ultimately makes them a better buyer.
When you can get a buyer who sees your asset as “priceless,” you’ve found the right buyer.
4. Culture Fit
Despite receiving an offer that was above asking for my house, I ended up going with a buyer who was a better fit for the house and neighborhood. My ultimate decision stemmed from wanting a buyer who appreciated the home and integrated well into the community, rather than just the high bidder.
I was looking for a culture fit.
The buyer had kids that would go to school here, and he had just the right number of kids for the bedrooms that we had. I already knew who they were going to be friends with and how they were going to be received by the neighbors. The family was a cultural fit that I knew would maximize the utility of the house and the surrounding neighborhood.
Businesses are similar. In countless deals, owners of established mom-and-pop businesses chose the person or couple that would be a good fit to run their business over an above-asking, all-cash deal.
Source: Happy
Sellers want to know that they are turning their businesses over to someone who will integrate well with the business, the employees, and the customers, to ensure the satisfaction of everyone involved and the longevity of the business.
5. Growth Opportunity Fit
Unlike buying a house, you want to make sure you are a uniquely good fit for the business you’re acquiring. This is largely dependent on your skillset being aligned with the specific growth opportunity this business has.
When analyzing a business, there are three steps to determining the business’s greatest needs and understanding how you’re positioned to address them:
- Evaluating the business
- Evaluating yourself
- Determining the overlap
If you want to learn more about how to do that, head to my previous article on how to determine a business’s biggest opportunities.
The buyer in this deal I was working on was comfortable with the growth opportunity and knew that she was the one who could create value there. The thing that really sold me – even though it wasn’t my business – was that she was the best qualified person to capitalize on the specific growth opportunities the business had.
More Than Money
Whether it was the business I was helping a business owner sell or my own house I was looking to sell, deciding on the buyer hinged on more than just financials. Ultimately it was about the buyers’ backgrounds, their understanding of what they’re getting into, and their readiness to take on the responsibilities of the purchase. This has been particularly evident in the business sale, where the selected buyer’s grasp of the business’s nuances and her readiness to tackle inherent risks made her the standout choice despite her lower initial offer.
These experiences are a reminder that, whether it’s selling a business or a house, the best deal isn’t always the one that looks good on paper. It’s often the one that feels right in terms of buyer-seller fit and future integration into the community or market.
Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.
