When buying a business is it a good idea to make a lowball offer? This is a critical question for many buyers. How should you frame your initial approach – a fair offer or start out low?
People will make a low offer for a number of reasons.
They don’t know what to pay –
Many times buyers are confused as to what they should pay for a business. Because they don’t know what to pay they play it safe by making a low offer.
They think this is how you do things –
Some buyers believe that starting out with a low is how business is done. They believe that they will meet the seller somewhere in the middle.
They receive bad advise –
Not knowing what to pay for a business, buyers often seek advice from those they think are knowledgeable. Sometimes this advice can be way off the mark.
It’s all they can afford –
This happens when buyers look at a listing which is more than they can truly afford. They hope to negotiate the price down to their price range.
They are looking to “steal” a business –
These buyers hope to acquire a business for a good deal less than its value.
A lowball offer will likely not be successful. Business owners view their business as a reflection of themselves. They have invested time and money, blood, sweat and tears to build it up. A low offer will often be perceived as an insult. In fact in the wake of a low offer I have had sellers tell me “I wouldn’t sell my business to that person at any price”.
Just recently I had a buyer interested in a niche type of business. It was the perfect fit for him and the type of business that does not come along very often. Against my advice his initial offer was 60% of the reasonable asking price. The seller was so offended that it did not matter when the buyer later raised his price. We were unable to reach agreement. The initial offer so offended the seller that he was in no mood to bargain.
If you find a business you want to buy the best approach is to do your research and calculate a fair offer. Many times the business is already priced fairly to begin with. A good deal of businesses will sell at list price. If you feel the price is fair then do not be afraid to pay it. Once you have determined the price you want to offer it’s OK to offer a little less to leave yourself some bargaining room.
Those who offer low thinking it will make the buyer come down more in price are usually in for a nasty surprise. In response to a low offer many sellers dig in their heels and refuse to budge. On the other hand if they perceive the offer as reasonable they will often respond in kind and try to find a happy middle ground. At the end of the day for a deal to work it has to be perceived as a win/win by all parties.
Quorum Business Advisors, LLC