“I was excited when I got the letter, so I called him. I should have known better.” Linda (not her real name) was telling me a story I had heard before, actually many times before. Business owners are inundated with letters from business brokers claiming they have a client who has identified the owner’s business and would like to talk with him/her about buying it. Though true on rare occasion, more times than not, this kind of letter is nothing more than a bait and switch to get the business owner to respond.
I’ve seen many situations where business owners find themselves wasting time with brokers like this. This happens because the business owner is being reactive to perceived opportunities instead of being proactive to develop and execute an exit strategy.
Linda runs a company in another state, I know her through a family friend. She called to get my advice on how to handle the messy situation she was in. She told me she responded to an “I have a buyer” letter. When she called the broker, he asked questions for a couple of minutes then said “I don’t think you are right for my client, but I’d be happy to represent you. You know, this is a great time to sell, if you don’t do it now, you might lose the opportunity. I know a lot of buyers.” I explained to Linda this was a typical bait-and-switch and here’s how it works. The broker baits you with the “I have a buyer” line, then the switch comes once you call and the broker will say something like, “My buyer isn’t right for you, but I’d be happy to represent you.”
Linda said about ten minutes after the call had ended, she got an email from this broker with his listing agreement attached. That’s when she had the presence of mind to reach out to her friend who suggested she call me.
I encouraged Linda to step back and think logically about when she wanted to sell her business. I told her she’ll know it’s the right time by how she answers these questions: 1) How much do I need to sell my business for? 2) Who would be the three most logical buyers? 3) If I sold for that amount to one of those three buyers, would I feel good about it a year later? This is what I call the “think-plan-act” approach to selling a business. Side note: I learned the “think-plan-act” plan from my late brother-in-law who was a senior official with the fire safety department at Cape Canaveral. What works to protect a top-secret government installation is the same thought pattern a business owner should take when considering the future for their business.
I think Linda will wait a couple years to sell her business. She told me its value today is not what she needs and she’s content to stay focused on getting it in better condition to sell for more. I’m glad she’s thinking strategically instead of reacting to opportunities that come her way. She’ll end up with a much better exit, whenever that is.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.
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