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Understand WHY Someone Is Selling Their Business

May 11, 2022

Understanding WHY a business owner is trying to sell their business is the key to not only negotiation and positioning but also crafting the price and terms of your offer. 

When first starting out, I see many people treat meetings with business owners like job interviews, they seem determined to convince the seller that they are the best buyer and to please take their money... 

 

But think about it, if you owned Apple, would you ever sell it? Of course not. 

 

Why? Because it's just too good and too valuable.

Most businesses are not Apple and they come with more than their fair share of problems, challenges, and issues, the more you can bring the focus of the conversation onto these issues and turn the table to have the seller convince YOU why you should buy, the better price and terms you will be able to negotiate. 

 

"If their business was amazing, they wouldn't sell it" 

 

This is the negotiating position and the stance you need to take into the board room BEFORE negotiations begin. 

 

Remember, companies are priced based on past performance, e.g their yearly net profit. Often times you will find yourself getting into conversations with the seller about what COULD be done, potential new markets, and breakthrough products that all hold a tonne of upside. 

 

All this potential upside is great, but it is just that "potential" there are no guarantees and you certainly cannot use these potentials and theoretical projections to justify paying a higher price. 

 

98% of businesses in the US don't make more than $1M per year.

 

Why?

 

Because the systems, marketing, sales, and fulfillment are just not at the levels required to scale and grow effectively... 

In other words, NOT Apple. 

 

So the next time you have a meeting with a business owner, remind yourself and politely communicate to the seller that you are not buying Apple and you need to understand WHY they are looking to sell in the first place.