Hopefully, you’ve read the previous three articles: If I Buy a Business, What Down Payment is Required and How Much Can I Pay Myself?, Want to Buy a Business? How and Where to Begin and Buyers: Why It’s Important to Inquire About Many Businesses.
In the last article, we encouraged you to look at as many businesses as possible to accelerate your education so you can recognize the right opportunity when it arises and to enable you to move quickly before other buyers wrap up the business you wanted to acquire.
Don’t Create an Adversarial Relationship with Business Brokers
Unless a business is for sale by owner, when you inquire about a business on a business-for-sale website such as www.bizbuysell.com, your submission will usually be channeled to the business broker who listed the business. That broker controls your access to the details of the business you inquired about. As a buyer, there is nothing to be gained by creating an adversarial relationship with the broker. By doing so, you’ll just be denied access to the confidential information package available for the business. As you learned in the last article, buyer demand for good businesses far exceeds the availability of good businesses. As a result, for a good business, a broker may be overwhelmed with inquiries and will choose not to deal with a buyer who is uncooperative from the get-go.
Cooperate with the Broker’s Pre-screening Process
Because sellers want the fact that their business is up for sale to remain confidential, it’s the broker’s responsibility not to release confidential information to anyone who doesn’t seem like a potential candidate to be able to make the acquisition. It is the broker’s job to screen out tire kickers who are unqualified due to lack of experience or an inadequate personal financial situation. Because you’ve read our previous three articles, hopefully you are inquiring about a business you are qualified for. It’s your job to convince the broker who responds to your inquiry, without begging or overselling, that you are qualified to acquire the subject business.
Honesty and cooperation are the keys to passing the pre-screening process. Brokers talk with buyers on a daily basis. Good business brokers are experienced interviewers and they can “smell a rat” from a mile away. That’s one reason it doesn’t make sense to inquire about businesses that don’t seem to be a fit for your background or experience, or are beyond your financial capabilities. It’s a waste of your time as well as everyone else’s.
The pre-screening methodologies utilized by brokers vary widely. Some will prequalify by phone, others will require an in-person meeting. Some brokers will send you personal information forms to complete to return to them. The completion of a personal financial statement form may be required. Whatever the process required, it’s best to be cooperative and answer all questions honestly. If you are not qualified for the business you initially inquired about, the broker will let you know, but their brokerage office may have other listings that may be of interest to you. In addition, your information will go into their database for future contact when new listings are obtained for which your background and financial criteria are a good match.
If you pass the initial pre-screening process, the broker will require you to sign a non-disclosure agreement (NDA), or confidential information agreement. The detailed terms of these agreements vary, but the intent is to require you to maintain the confidentiality of the information to be provided to you and restricts you from sharing that information with anyone other than your professional advisors. The broker and seller are absolutely committed to making sure the fact that the business is available for acquisition does not become public information and you are required to comply with the provisions of the NDA. There’s usually a lot of boilerplate legal provisions that are fairly standard. Again, it’s best to be 100% cooperative with the broker and sign their NDA. This is usually not a negotiable document. Without your signature, you will not be provided with the confidential information package prepared for the business.
How to Work with Business Brokers to Buy a Business
For first-time buyers, a good business broker (or brokers) can be your best friend. They may have access to several listings that meet portions of your criteria and will usually share preliminary information to determined your level of interest. Discussions along these lines can be educational as well as help you better define the important criteria for your personal interests. Perhaps, more importantly, they will you keep you informed of new listings obtained by their office. As indicated in a previous article, especially when it comes to really attractive listings, “the early bird gets the worm”. Early notification from a broker of a new listing can be the difference between your success or failure in finding and acquiring the right business. On the most attractive listings, you must be prepared to move quickly to the offer stage.
One final note. The quality of business brokers varies significantly. In larger offices, you will likely be “permanently” assigned as a buyer to the first broker you speak with. If you don’t feel good about a broker, or his/her qualifications/experience, capability, integrity or communication, don’t hesitate to pick up the phone and call the owner of the office to request that you be assigned to a different (and hopefully better) broker in the office.