5 Tell Tale Signs to Know If You’re Buying a Good Business From a Business Seller
When buying a business there is really no way to tell if you have gotten the deal you expect from the seller until after closing. You can do all the due diligence in the world and the seller could still be hiding major latent defects. Heck, unless you can tell the future you really don’t know the outcome of your business purchase until after closing. Due diligence, research, and a proven management team help increase your chances of success, but they don’t guarantee it. I’ve found after good and bad experiences in buying businesses you can actually read the sellers by closely studying how they react close to closing. Please be aware that these “telltale signs” by no means should be considered a substitute for due diligence, however if you see these signs you know you may have a good seller.
1. The seller repeatedly expresses concern over the employees – I’ve worked with some business sellers that frankly do not care about the employees. I’ve also worked with some business sellers that are selling the business because they want what’s best for their employees. If the seller is seriously concerned about the status of the employees that is a GOOD sign.
2. The seller has remorse shortly before closing – If the seller begins to seriously question the sale before closing then you may have a good deal. I had a really bad experience where the seller was trying to get to the closing table faster than we were (the buyers) because the bank was about to call the credit lines due.
3. The business broker has done a large carry back of a commission – Any experienced business broker is going to try to get as much cash down on a business sale as possible. The logic behind this is that if the buyer (you) chooses or is unable to fulfill your obligations on the purchase then obviously the business broker may never get paid. An experienced business broker that has enough faith in the buyer to carry back a large portion of their commission contingent on the buyer’s completion of the purchase is a GOOD sign.
4. The seller continuously negotiates the post closing priorities- I feel have the business seller involved post closing through a carry back of the purchase price or involved in management (either permanently or temporarily) is imperative for your success. If the seller’s first priority is to get as far away from the business as possible, you may want to double check everything. At times sellers will use retirement or new ventures as a reason to get away from the old business. This doesn’t mean the seller has done anything fraudulent; however you may want to make sure you have all the accurate contact information for them.
5. The seller cries at the closing table – I’ve never personally experienced this, however I heard this from another business buyer. He stated that the seller felt more attached to his business than he did his own children! Handing the business over to a new owner was definitely an emotional process for this seller.
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