Jim Parker’s Tips for Selecting Serious Buyers

Jim Parker’s Tips for Selecting Serious Buyers

Business broker veteran, Jim Parker has some great tips for helping business brokers and M&A advisors to find the best and most serious buyers possible. As we covered in our previous article, it is key that you only bring serious buyers to the sellers you represent. One unprofessional or less than serious buyer can damage your reputation and even potentially cost the loss of a client. In this article, we’ll dive in and explore a range of Parker’s insightful and actionable tips.

The Vetting Process

Topping Parker’s list of steps you should take when seeking serious buyers is to have a substantial vetting process. Parker worries that the industry as a whole fails to properly vet prospective buyers. In his view, you should take steps to really learn who you are dealing with. This begins with asking for copies of driver’s licenses and obtaining addresses.

Do Your Research

The simple but undeniable fact is that anyone can call up or email a broker, give a name, and even sign an NDA, potentially using a false identity. This is why Parker strongly recommends that you not only verify the name and address of potential buyers that contact you, but then also take that information to actively research the potential buyer in question.

Parker astutely points out that armed with an address and a name, it is possible to quickly learn a great deal about a prospective buyer. Simple internet searches can provide information ranging on the buyer’s background, biography, and resume to whether or not the buyer is a competitor or even has a criminal record. Life in the digital era means that such information is literally only a few simple clicks away.

Financial Net Worth Statements

Another key step that Parker recommends is having prospective buyers sign a financial net worth statement. It is hard to argue with Parker’s logic that before any real progress can be made, it is essential to know whether or not a buyer has the means to actually buy a business. This is a basic, but very necessary, step that serves to protect you from wasting your most valuable asset, your time.

If a prospective buyer seems shocked or concerned that you are vetting them, you likely have a problem. Any serious person entering into the process of buying a business, where millions of dollars and people’s livelihoods are being placed on the table, should instantly realize that steps to evaluate buyers will invariably be taken. Don’t be shy about requesting this information and expecting it to be delivered before moving forward.

Looking into Other Determining Factors

However, even if a prospective buyer has the financial means to buy a business, this should not be the end of the vetting process. Next, you must investigate whether or not the prospective buyer has the experience and industry knowledge necessary. You’ll also want to assess the buyer’s motivation level. It is also well worth it to determine if the buyer in question is free from other potentially negative factors, such as a reluctant spouse or partner, before moving forward.

In short, vetting prospective buyers should never be seen as a one-dimensional process, but instead should be seen as multi-dimensional. Part of this process is to factor in the expectations of the seller. At the end of the day, there will be interaction between the buyer and seller, and the wrong seller expectations could derail a deal. For this reason, it is important that you understand your sellers’ expectations and work to make them as realistic as possible.

Buyer Expectations

Buyer expectations must also be carefully vetted. Buyers should realize that there are no perfect businesses. Small businesses, in particular, may have a variety of problems and “holes” that need to be addressed. As Parker points out, some small businesses may not even have their standard operating procedures written down.

Additionally, buyers must also understand that there is not an unlimited supply of businesses. While there are many businesses for sale, not all will be a good fit for the buyer or match up with a range of criteria such as type of business or geographical location.

A Few More Red Flags

A key way to assess the seriousness of a buyer is to carefully watch how they interact with you. If they don’t respond relatively quickly to your emails and phone calls, then this is a very bad sign. A serious buyer will not let days pass before getting back to you.

Another very large red flag when dealing with prospective buyers is a reluctance to provide basic information. A serious buyer will realize that he or she will have to provide such key pieces of information as their driver’s license information, financial net worth statement, and other relevant information. If a buyer is unwilling to provide this information, you may wish to reconsider working with that buyer.

At the end of the day, your time is limited and valuable. You want to avoid buyers that are not serious and buyers who may be difficult. Remember that if a buyer is difficult in the opening stages of the process, then there is an excellent chance that he or she will be difficult and demanding throughout the entire process.