Client evaluation: Selling on a dream & the Picky Meter

Average time to sell a business is 6 months to 1 year-average time to buy a business is 6 months to 2 years.

Why is this?

Half is the market of business sales and the other half is…

Unrealistic expectations

Unrealistic expectations are often the case when dealing with sellers and buyers of businesses. Often business brokers have to educate clients to the reality of the business sales market. If this cannot be done then a deal will never be made.

SELLERS:   Selling on their dream

I recently had a very nice restaurant I was trying to sell. I had many buyers interested. This was a high-end restaurant in Laguna Beach. The seller wanted $2.5 million and the market for sales of a restaurant of this type with this income is $1.8 million. We were way off the mark. The seller insisted that we list it at that price. He was basing his price on future income (he had just expanded and had done many improvements to show an increase in sales). The problem is nobody buys a business on future income. They buy a business on current income. I explained to the seller in a nice way that it will take a long time to sell his business. I will not be able to sell it this year. Most likely it will be next year. I have to be able to either prove the income (1 year of proven sales with increases every month) or reduce the price to what the business is really worth. Either way this will not happen now.

Emotions often play a big factor with sellers of businesses. The attachment to the business for so many years creates an imaginary value that only the seller sees.

This is why a good explanation on how we come up with business valuation is important.

BUYERS:  Picky meter (client evaluation)

Anyone successful in the real estate industry has to have two important skills:

1. Manage time efficiently by working with the right types of people.
2. Be very good at educating clients on the reality of the Real Estate Market.

When it comes to selling businesses the compatibility between the buyer and seller is often just as important as the price that is agreed upon. On more than one occasion I experienced a situation where the price was agreed upon, the transaction had gone into escrow and later canceled because the seller and buyer could not get along.

To avoid this now I have had to become an expert at match making.

Two things I always look for when I speak with potential buyers:

1. Are they amicable?

"People want to do business with someone they like. If people like you, they're going to want to do business with you. And if they don't, you're going to have an almost insurmountable obstacle to overcome." 
  -  Barbara Corcoran, Entrepreneur

1. Have they owned a business and do they have the entrepreneur mindset?                  Evaluated on the Picky Meter :)

After studying over 500 millionaires, including Andrew Carnegie, Henry Ford, and Charles M. Schwab, author Napoleon Hill found that they all shared a single quality:

                                                        Decisiveness

" Analysis of several hundred people who had accumulated fortunes well beyond the million dollar mark disclosed the fact that every one of them had the habit of reaching decisions promptly"