Unmotivated Business Sellers

What constitutes a motivated seller? The common perception is that ‘seller motivation’ translates into ‘willingness to reduce price’ whereas in reality, nothing could be further from the truth.

“There is an old mantra in our industry: no motivation – no deal,” says Achim Neumann, President, A Neumann & Associates, LLC, a leading New Jersey-based mergers & acquisitions and business brokerage firm, “ and indeed, nothing else is more true than this.”

Here are a few examples of how an unmotivated seller can immediately set ‘red flags’ with potential investors:

• No preparation on the seller’s part – for example, the seller has never determined the Fair Market Value of his company, has not settled on what he ultimately likes to obtain after taxes, or is asking for a significantly inflated price;
• A poorly written prospectus, which does not describe the competitive environment of the business or the growth prospective. This generally makes it very difficult for a potential buyer to understand the business and its environment;
• Dirty and unorganized facilities generally are transposed in a buyer’s mind onto the seller, in other words, if the seller has a poorly organized facility, then most likely, the financial system and business execution is similar;
• A lack of interest in meeting or continuous rescheduling of buyer introduction meetings;
• Lack of prompt response to an offer – this is by far the worst red flag for a buyer, in particular, if a full price offer was submitted. Nothing underlines more explicitly the lack of a seller’s motivation if he/she ignores an offer;
• Slow response time in providing due diligence information after the seller has provided a comprehensive list of documents that he/she wants to review. Delays in providing such documents are generally interpreted as lack of motivation to sell;
• Increases in rent or change of other transfer terms when a seller decides all of the sudden to increase the rent for a facility even though it was advertised differently in the prospectus;

Savvy business sellers understand that many buyers have attempted multiple times to buy a business – taking one to two years to find the right business and purchase it. During the process, the buyer has experienced various scenarios in which the seller initially appeared to be ready to sell, but ultimately—often in the very last minute—had seller’s remorse and did not go through with the transaction. Such a situation can come at a great cost to a buyer, with $10,000 to $20,000 in CPA and legal fees, as well as two to four months of wasted time. Thus, buyers will look for any telltale sign of an unmotivated seller

For a business seller to succeed in selling a business, the owner needs to put her/his absolute best foot forward, otherwise, any effort to sell is doomed – often at quite a bit of expense for potential buyers.

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