Many of my posts focus on businesses that are for sale – as opposed to not for sale, or never thought about selling. These for sale businesses are usually represented and listed by brokers. In some cases these are main street brokers, in some cases big deal shops and M&A intermediaries and even real estate brokers in states like Florida. Businesses that go this route have indeed decided to sell and take the necessary steps to market their business. Without going through statistics, which probably aren’t even available, I would say that many small businesses go unsold and stay that way for a matter of years. And these are guys that want to sell.
There is generally a decision process the Seller must face
- He has to be mentally and emotionally ready to sell
- He has to prepare his business for sale
- He has prepare his family and employees for the sale
This list is not comprehensive and by itself may not seem imposing but it is. Age means nothing. Many sellers will not be ready to sell their business at age 55, 60, 65, 70, 75, or even 80. I have visited 88 year old business owners that were nearly incapacitated and simply would not give up the reins. I have also visited sellers that were as young as forty who claimed they were burned out, which couldn’t have been further from the truth. Both of these sellers were represented by brokers who didn’t focus on their motivations.
The moral of the story is to be suspicious of anyone who says they are ready to sell. Emotionally, long time owners are eternally connected to their business and their employees just as much as anything or anyone else in their lives. It is a very hard bond to break.
The broker has no magic when it comes to getting the seller to sell or understanding whether he is ready. It isn’t like listing your house for sale at market price and getting a check a month later. The seller has a lot to think about before he ever signs a contract. The seller has to be comfortable with the buyer, the price, the terms of the deal and with himself. None of these issues will be easy for him. Any distractions or interference with outside parties will delay his decisions and thinking process.
Finding A Business Seller Directly Can Have Enormous Advantages
Sourcing a deal directly without the aid of the broker network does have its advantages. I don’t always recommend it to first time buyers because you can learn more initially by going the conventional route and working with a broker. The broker can give you insights on the process and information on the deal that would not be easy to get from the seller directly. However, once you have a foothold on the deal process and are comfortable talking to sellers, then it is a very good idea to start an organized campaign to contact sellers directly.
Going to sellers directly removes the lineup of professionals that will pull the seller in different directions. There will be no accountant, lawyer, broker or adviser at the beginning. It will just be you and the seller. No distractions. He could be at any stage of his life but you will have introduced him to an exit strategy he probably has not considered. And he is certainly receptive to the idea since he let you in the door.
You will be in a position to be the first contact, the guy who can educate the seller on the process. He will be going to his people much later in the process and you will always have a leg up in credibility because you got in early. He is much more likely to pull the trigger to sell with someone who has spent time with him, who he has known for a while and who he can check out at his leisure. And of course there is no competition for his attention.
The only drawback, and this may be a benefit as well, is that the seller isn’t a seller yet, he is merely testing the waters because you contacted him with your interest level. But you can now wear the hat of a broker and educate the seller on the process of selling his business. You are the good guy, the guy helping him through the jungle. Many business owners who were not even thinking of selling their business, have often gone onto to do a deal with buyers who contacted them in this manner.
Regular mail letters to CEOs have an excellent response rate for setting up introductory meetings. Emails work well too and are obviously inexpensive. You need to know who to mail to and have a reasonable idea that he will receive the email. Follow up phone calls are also desirable although you will often be screened by receptionists. If this seems like an old school approach to prospecting, yes and no. Brokers go through this exact process to source their deals. These days simple databases on the internet can provide you with endless leads for an automated emailing program that will get the message out to thousands of targeted businesses.
How To Start Out Contacting Businesses Directly
- Stay away from broker listing sites, this is a job for email marketing services and business databases.
- Keep networking with accountants, bankers, lenders, lawyers. All can help you with leads.
- Draft a short cover letter that explains your interest in a visit and offering a free consultation (valuation)
- Use both email and regular mail. Regular mail is always received and usually goes to the right person.
- Emails should comply with Can-Spam. It is easy to follow the rules, and you aren’t actually soliciting.
- Make sure the businesses are within visiting distance. These are sellers you need to visit.
- Target several specific industries of interest. Don’t contact all industries, specialize a little to polish your pitch.
- Make the numbers work for you, keep the campaign running daily and set a goal to make a once a week visit.
Part of carrying on an acquisition campaign is that you need to have a system that can develop selling prospects. You can contact brokers or go the route of contacting businesses direct. The broker route is a bit easier up front because they qualify the leads ahead of time. However the advantages of going direct are substantial as well and are made a great deal easier as long as you make the marketing effort a consistent one.