How business buyers can build trust with a prospective seller
By William Fry
Jan 2, 2024
In Buying a Business
As a buyer of a small business, you're simultaneously trying to minimize the chance you overpay or buy a dud while trying to maximize the chance that the owner chooses you. The best way to thread the needle here is by finding ways to spend time with the owner.
In-person time with the owner helps to reduce the information asymmetry between you and the business (e.g., what is he worried about? what employee is about to quit? what piece of machinery needs to get replaced soon?). Additionally, it helps to increase the goodwill between you two.
From the perspective of a business owner, even accepting a non-binding LOI takes a leap of faith. They're betting that by going with your LOI, you'll stand by your word and transact. They're knowingly taking a risk that they may be wasting 90+ days and a decent amount of attorney and CPA hours.
Here are some common ways we see buyers build a relationship with owners:
First date: To start, try to get the owner away from the office for a meal or drink. Keep it personal and use it as a way to get a direct point of contact with him or her.
Ride along: Ask if you can shadow the owner for a day to learn more about the business. Pick 2-3 activities that you'd really appreciate seeing and offer a few days that work.
Include partners: Set up a double date with the owner and their spouse and you and yours. Get to know them personally and express your admiration for their business and appreciation for their time.
Get advice: Share an article or a question that you're thinking about in relation to the deal. Ask for their thoughts or opinions.
Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.
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