Lately we have had a run of customers, who would have us believe they are buyers, asking for lots of information and trying to do their due diligence on a business purchase before they make a bonafide offer.

It is often hard to know how much information you should get before making an offer on a business that is for sale.   I also recognize that different brokerages treat the subject differently.  Some require that a customer make an offer before they even get access to any real financial information.  We don’t work that way.

We believe we have to give the customer enough information to make a reasonable judgment about the business. We most always provide financial summaries of recent tax returns or owners P&L statements.  We usually provide equipment lists, and we as accurately as we can represent all the assets that are being included in the business.  We also arrange visits to the property and visits with the Sellers.

However, it is unrealistic to expect a Seller to provide volumes of detailed paperwork or to allow the inspection of equipment, or to allow other professional inspections of the property, without an agreed upon offer to buy the business.   For that matter, it is really a waste of the customers time to go thru all that if they don’t have an accepted offer on the business.  It is also really not appropriate to have any interaction with customers or suppliers of the business before you have signed P&S agreement.  Businesses have been seriously damaged by interactions between would be buyers and suppliers and customers.

We include all kinds of inspection and financial record review contingency clauses in our purchase and sale documents, and often see buyers bringing in other lawyer drafted documents with more pages than ours, so we go out of our way to let the buyer review all the facts about the business before they go to closing.

One of the main reasons Sellers hire us to handle the sale of their businesses in to protect them from any unnecessary intrusion of the selling process on their daily conduct of business, and to protect the confidentiality of the sale process.  We take that duty very seriously.  We must protect our clients, the Sellers.

We just ask that we and our clients, the Sellers, receive a real offer, with money on the table as a deposit to make it real and legal, before buyers ask us to start the sometimes long and laborious process of due diligence.

During a recent discussion with a couple of our Associates we got into the subject of how people who want us to believe they are buyers make offers.

In the kind of tough economic times we are currently going through of course a lot of our customers are bargain hunters.  There is nothing wrong with that, we often have bargains for them.

But it is important to understand that we help our clients, the Sellers, place values on their businesses and properties.  We do so based on valuation techniques and of course always end up with some negotiation of the final offering price and terms.  The point is that the offering price reflects value, either of assets, or cash flow, or both.

Rarely do we have a Seller who says “let’s give the buyer a bargain and price this to just get me out of it”.

If you are a buyer you need to recognize that to get a serious response from our client (and us) you have to make an offer that has some reasonable relationship to the value being offered.  There is no question that the value to you may be different than to the Seller or someone else, (we like it when it is higher).  But if you always make a “fire sale” offer just expect that the response will based on that perception, and you will not really be taken very seriously.

Richard Parker, Founder & Chief Executive Officer, Diomo Corporation (www.diomo.com) Just published a really good blog that says, among other things, that ““A lot of you started out 2008 with the goal of buying a business this year. If you’re still looking, you had better get moving”.

 He points out that there will be a swing in the economy and that he bets it will go back up (it always has!).  Additionally he points out that if you are planning on becoming a small business owner you had better get used to taking risks.

He says “I would never suggest that you act recklessly. Nor would I recommend against the thought of proceeding cautiously. But, if you’re waiting for a good time to kiss employee life goodbye and get into your own business; there will never be a “good time” to do so. Just as there is never a prescribed “good time” to get married, start a family, buy a house, or make any major decision. 

Successful people take risks. They take calculated ones. They make massive, life-altering decisions. Some work, some don’t. The difference is that they make them as a result of being well-informed beforehand and they are right more often than not.”

We are seeing a lot of customers agonizing over the “credit crunch” and waiting for “the bottom of the market”.   Unfortunately the way you can be sure the market has bottomed out  is to chart it going back up, which means you missed it already!

Additionally, when you look at an individual business it does not really matter that much what the global market is doing, what matters is the situation in the neighborhood or segment of the economy where your business target is.  The basics of analyzing that stay the same regardless of what is going on in the rest of the world.

 Local Bankers are still telling us that they are sitting around waiting for us to bring them deals, and they need to put money to work to make money.

Additionally a customer the other day mentioned that a lot of our listings had “price reduced” signs on them.  That is right, we and our clients, the Sellers, have had to reflect the changes that have already happened in the marketplace.   There are some really good deals available.

  So if you made a New Years resolution last January, or decided since then, to buy a business this year it is time to get at it.  There is still time to get thru the two months,  more or less, processing period and get in well before this coming New Years!