Anytime you look at a website listing or prospectus there is almost always a section that will tell you the seller’s reasons for selling. This information is important for a lot of reasons – we want to know what their motive is and in particular we want to know if their reasons for selling are legitimate or illegitimate.
There are lots of legitimate reasons to sell a business just like selling almost anything, right?
There’s a partnership that’s gone awry and they have no choice but to dilute the business, sell it off and part ways; they are simply tired of running the business, they’ve done it for a long time they have interest in something else or, sometimes people just need the cash so they have to divest out of the business. These are all legitimate reasons and there are many other legitimate reasons that I haven’t listed here.
What we should pay attention to is people who say a legitimate reason, but the true motivation is something entirely different. In these cases the seller knows something that we don’t, maybe they see some bad signs coming ahead for the business – they may know about policy changes by big players; they may know that their website is dependent on something and that person or thing or that software is going away; there may be something really significant going on where the site isn’t very profitable based on the amount of work required to run it or there’s lots of customer service involved and it’s a difficult customer service and they don’t want to deal with it.
It’s important to get an idea of what’s going on behind the scenes
Now, don’t get me wrong you’re still going to do your due diligence; you’re still fundamentally going to make the decision based on what you see in the numbers but the more that you can learn about the seller’s motivation for selling, the better lens you have for looking at everything else.
So, if the seller shows integrity in explaining why they’re selling then chances are you can trust the other data that they are putting in front of you. If they don’t have integrity about explaining their reasons for the sale, then what else are they telling you that you can’t trust?
In a private deal with a seller, one without a broker as middleman, your main tool for finding out anything is to ask questions. You want to ask the right kind of questions and make sure you really listen to what the seller says.
Look at how they answer your questions and compare what they say in words to what they’ve said in the past or what they’ve written or what you’ve perceived from the numbers of the business. From your interactions with the seller you will start to get an idea of whether you can trust them and that they have integrity.
Ask questions, build friendships
While you’re asking questions you want to develop your relationship with the seller, I don’t care if you’re suspicious about the sellers motivations, if you have a lot of doubts or you think that they’re lying to you, you still need to develop as positive a relationship as humanly possible because the better your relationship is, the more authentic they’re going to be, the more things they are going to tell you, the more doubts and worries and concerns and advice they’re going to give you. Also, if you follow through with the purchase of the business you want a great relationship with that seller, so they can help you successfully transition and grow the business after you become the owner of it.
Now, if you’re dealing with a broker then you still need to use the same strategies except your focus should be on your relationship with the broker instead – be courteous, be considerate, not any less demanding in terms of what you need to make your decision but a good relationship with a good broker will help ensure you have the right information. You are aiming to have a great relationship with your broker and for that relationship to be conveyed to the seller as well; you want to pass credit along where credit is due, and it’s definitely due to the seller, they’ve built up the business to a certain point and they deserve credit for that, right?
It’s not what you say but how you say it
You not only want to be careful about the way that you phrase your questions but also be aware of how many questions you’ve asked, make sure they’re pertinent questions and make sure the way you ask them is not critical; the trick is to ask them in a way that is either neutral, complementary or just seeking the truth in an answer and not pointing fingers at the seller, you don’t want to seem critical about their actions or reasons for making certain choices.
Questions with a disapproving edge are not helpful because they will affect your efforts at relationship building. You still need to build professional relationships to the greatest extent that you can to get underneath what they’re telling you and to get an idea of the integrity of this person. You want to use your judgement as additional information to help you make the final decision on whether to buy the business or not.
If you’re serious about the business and it has any significance in size, chances are you are going to be able to talk to the seller directly or this may be facilitated by the broker, and of course, in that case, all the above applies.
I hope these tips to get you thinking not just about what the seller is telling you but also about the ways you communicate with the seller. If you can get on a more friendly terms you will get more of the truth about who they are so that you can make the best decision possible when it comes to making a serious offer on a website.