If the first offer you receive for your business is a great one you should accept it. Or should you? It is quite understandable that, when offered a large sum of money for your business, you feel you should grab it with both hands.
Before doing so at we’d like to give you some reasons why you should think twice.
The sweetheart approach
A direct approach and offer from a potential buyer may seem enticing. They sell themselves to you as an ideal buyer and on the surface everything seems rosy. But consider this: are they really the ideal buyer or do they have a hidden agenda? Is their approach simply disguising their real intent – to buy your business for a lower price than others would pay? In the business sale marketplace such approaches are not uncommon and are known as ‘the sweetheart approach’ even though there is little that is sweet or heartfelt about them.
So what should you do if you have been approached in this way? If you are reading this then you will realise that selling your business is far more complex than selling anything else and that there are many other types of buyers which may be interested in your business.
For example, there may be buyers who are looking to gain an entry into your marketplace and so will pay a premium to do so; there may be buyers with strategic motives who will pay a premium; there may be foreign buyers looking for entry into the UK who will pay a premium; there may be competitors looking to ensure another competitor doesn’t buy your business.
There are a host of potential buyers for your business and so, before accepting the first offer, find out who else would be interested in your business. It is a fact that the more potential buyers for your business, the higher the offers and the better the terms.
Who is your sweetheart?
If you have received a direct offer ask yourself what you know about the person making this offer. Many businesses are bought with loaned money; does this person require funding or not? If they require funding, is it already in place or does this need to be arranged?
Where funding is required for the business purchase it may be that the organisation providing this does not value your business so highly, leaving the buyer with a potential shortfall and you with the prospect of having to lower the sale price
If you don’t know the buyer well it is prudent to find out a little more about them. Are they trustworthy and honest? Have they bought a business before? What is their record in business? Remember this is someone who you are potentially going to divulge every detail of your business to and who will take over the running of your business and the management of your staff. Ask yourself if you feel confident doing so.
It may sound obvious but an offer is not a sale. An offer from a buyer still has a long way to go to become a completed sale. Once it has been accepted it there is still the Heads of Terms to agree and sign. This is a document which outlines the main terms of the sale but does not commit either buyer or seller to completing the sale. In addition, there is the due diligence to be completed, an in-depth and thorough analysis of the business, required to ensure that everything about your business is as you say it is.
Due diligence can often highlight issues in a business which a buyer may not have been aware of and this can lead to renegotiations of the sale price. If the offer you have accepted is from a sweetheart approach you will have very little ability to maintain the agreed sale price by leveraging the interest of other buyers.
Finally, an offer is just that, an offer. Until the final stage of a sale, the completion, an offer can be withdrawn at any time leaving you, if you have been approached directly, with no other buyer and having wasted a considerable amount of time.
Firm Gains View
“If you receive an approach it may well result in a seemingly great offer for your business. However, evidence shows that once other buyers are introduced the offers and terms greatly exceed those from the first potential buyer.
“Even if where they do not raise their figures, it will aid the negotiation if the initial buyer knows that there are other interested parties.”