Overview
Of The Selling Process
The
Truth About Small Business Buyers
(How to avoid wasting time with people who aren't
going to buy)
If you
have already read the other articles in this section on buyers
then you already know that the biggest reasons people want to
buy a business are not money related. They are psychological
reasons like wanting to control one's own fate and to experience
more freedom.
And
while it is absolutely necessary that we understand these psychological
motivations we also have to be able to asses their seriousness
and their ability to buy.
We have
to be able and willing to pass judgment on people
- and quickly. Otherwise we will waste a lot of time. The reason
is because of the "90% Rules".
The
90% Rule(s)
Here
are some facts about business buyers that one study after another
has shown to be true for a long time:
** 90%
of people who inquire about buying a business never buy
anything.
** Of
the 10% that actually do buy a business, 90% of them are first
time buyers. That means that most of them are uneducated
about the buying process and what is actually required to buy
and run a small business.
** 90%
of buyers don't know what kind of business they want (or they
are at least open-minded about considering several different
kinds of businesses).
** 90%
of buyers are looking to replace a job. They will not
be passive investors. Instead, they will be showing up every
day to run the business.
** 90%
of buyers don't have enough money to pay cash for the business
so their purchase will be financed. And 90% of those buyers
get the financing from the seller. So, about 81% of all sales
are financed by the seller.
By far,
the most important of these rules is the first one. 9
out every 10 people who reply to a business-for-sale ad or call
a broker never actually buy a business.
Since
9 out of 10 potential buyers never do anything, it means the
10% who do actually buy are part of a special minority.
To this
special minority, the idea of owning a business is
more important than the specific type of business.
More
than how much money they can make, it is all those other benefits
that you must sell to the buyer - the freedom, the pride
of ownership, the ability to express themselves.
After
all, if all they want is money they can stay in their present
job.
It's
the things that they can't get at a job that will motivate
them to take that leap of faith necessary to go into
business for themselves.
(And
remember, 90% of buyers have never been in business for themselves
before so you have to keep reminding them of the fun
and satisfaction they will get from being their own boss. Just
because you, as a business owner, know the benefits don't assume
the buyer does).
The
90% who never buy anything either don't have any money or they
have the money but they don't have the guts. While I would say
more than half of the do-nothings don't have the money, a
surprising number do have it. But they are scared off
by the reality that owning your own business is hard work....
and risky.
That's
why you never want to whitewash how hard you work or the difficulties
you deal with as part of running your business. The do-nothings
will be turned off by it, but the real buyers won't care
- they want and need the benefits of business ownership more
than they want or need a cushy work schedule or a guaranteed
paycheck.
If you
try to paint a rosy picture of quick money for little effort,
the buyer isn't going to believe you anyway.
If you
work 60 hours a week, including most weekends, tell the buyer
the truth. If that is what it takes to make your business
work, the buyer needs to know that.
Otherwise,
you will be selling your business to someone who will be unprepared
to succeed. And if you are in that 81% of sellers who finance
the sale, you will be lending your money to someone who is going
to fail.
Separating
The Wheat From The Chaff
That
headline may sound a little harsh, after all business buyers
are people too. But the fact remains that most of the people
who inquire about your business will not be ready, willing
or able to buy. So you need to be able to tell if someone
is a good prospect quickly or you will waste a lot of time that
you can't afford to waste.
So how
can you tell up front if someone is part of the 90% group or
the 10%?
Well,
there is no way to know exactly but here are a few behavioral
traits that distinguish the two.
** They
ninety-percenters focus almost exclusively on money while the
ten-percenters focus on money AND the dream/idea/challenge of
being in business for themselves.
** The
ninety-percenters want a "turnkey" business that they
can put on cruise control while the ten-percenters want
a business they can improve, build and make their own. Ten-percenters
are looking for a good business they can make better and are
willing to work hard to accomplish that.
** Ninety-percenters
think they should be paid handsomely from day one while the
ten-percenters are willing (and prepared) to cut back on
their lifestyle and expenses for as long as it takes to pay
for the business.
The
good news is that even if just 10% of prospects are good prospects,
that's still enough prospects for you to sell your business.
The
important point here is that you don't want to waste all your
time trying to please the 90% who aren't going to buy.
And
you don't want to waste your time trying to turn a ninety-percenter
into a ten-percenter - you can't do it.
Too
many sellers make the mistake of trying to please
everybody. They try their hardest to paint a rosy picture
of easy money for little work. They brag about how their business
is a "turnkey" operation. And all for a bargain basement
price.
To the
90% of non-buyers, this is just what they are looking for. To
the 10% that are educated, prepared and qualified, it sounds
too good to be true.
The
best way to ferret out the real buyers from the 90% who can't
or won't buy, is to treat everyone
like they are part of the 10%. Here's how:
1.)
Describe your business in the best possible light without going
overboard .
2.)
If there are opportunities for growth explain them to the
buyer in detail so he understands. Don't settle for generalities
about how easy it will be for the new owner to "explode
profits".
3.)
If, along with these opportunities are challenges and the need
for hard work and sacrifice, say so.
4.)
If you have made mistakes that have hurt growth and earnings
admit to those mistakes.
If your
prospect responds by showing real interest in the inner workings
of your business and the opportunities it presents then you
probably have a good buyer. If their only response is to ask
for a price discount along with 100% financing then you know
you don't have a buyer.
The
bottom line is that even though only about 10% of the prospects
out there are good ones that is still enough good prospects
- after all, you only need to find one. But you can't
afford to waste time with bad prospects.
So stop
trying to please the 90% who aren't going to buy anyway. It's
amazing how quickly these prospects lose interest once you are
honest about what it takes to run a business successfully.
The
high quality prospects however, know that there is no free lunch
and are not going to be impressed when you present a situation
that is too good to believe. So don't even try.
