How do you know when you can trust a buyer for your business?
It’s a simple question that most entrepreneurs overlook when selling their businesses.
When it comes to selling your business, you have one chance to get it right. Make it count.
Who am I, and how do I know?
I was the kid who started his EdTech right out of school with no money, experience, or team. My grit and passion kept me in the game long enough to go from failure to success.
Success took my Edtech from obscurity to notoriety in the blink of an eye. It was the notoriety that had me receive an unsolicited offer to buy my business.
The buyer was smart, sophisticated, and experienced and said all the right things. I didn’t know what I didn’t know, and the buyer knew it.
In reality, the buyer was a wolf in sheep’s clothing. My saving grace was saying “no” to a 7-figure offer based on three times EBITDA.
In saying “no” to the offer, I said “yes” to dedicating myself to master the art and science of selling a business.
Two years later, I said “yes” to a 9-figure offer based on 13 times EBITDA.
My obsession in mastering the art of selling a business exposed me to a new world. What I learned shocked me to the core.
When it comes to selling your business, the system is set up against you. All-day. Every day.
There are tell-tale signs of when you can trust a buyer.
How do you know when you can trust a buyer?
Keep reading to find out.
Never, Ever Trust A Buyer Who Tells You That You’ll Receive A Higher Price If You Don’t Speak To Other Buyers
It’s choice – not chance – that determines your destiny – Jean Nidetch
Never, ever trust a buyer who tells you that you’ll receive a higher price if you don’t speak to other buyers.
Selling your business is a zero-sum game.
Buyers hope and pray that you’ll make mistakes. Lots of mistakes.
Read and prosper from “Do You Know The 7 Mistakes Every Buyer Wants You To Make When Selling Your Business?”
Every mistake you make lines your buyer’s pocket with money. Your hard-earned money.
What is one of the tell-tale signs of when you should not trust a buyer?
When the buyer tells you not to speak with other buyers.
Not speaking with other buyers relies on the supply and demand principle.
The less demand there is for your business, the lower the price to buy it.
Selling your company through an auction is a great way to increase your company value.
Remember that wolf in sheep’s clothing of a buyer who approached me to buy my EdTech?
One of the first things the buyer insisted on was that I speak to nobody else.
What should you do if you find yourself in a similar situation?
Run. Run as fast as you can in the opposite direction.
Put in the time and effort to hire a Chief Exit Advisor and assemble your exit team.
Do this today, and you’ll thank me tomorrow.
Want to know the classic mistake most entrepreneurs make that costs them millions?
Never, Ever Trust A Buyer Who Wants You To Sign An Exclusivity Agreement
Use wisely your power of choice – Og Mandino
Buyers hope you’ll make two classic mistakes that are a one-two combo.
The first classic mistake is believing you’ll receive a higher price by talking to no one else.
The second classic mistake is signing an exclusivity agreement.
Entrepreneurs who built successful businesses are smart.
Why do smart entrepreneurs make stupid mistakes when selling their company?
Hint: It’s a five-letter word.
Your future buyer is as smart or smarter than you.
Buyers appeal to your greed and ego and tell you that you’ll receive the highest price when you deal only with them.
You’ll hear that you’ll save time, and this is why the buyer will pay a premium. Time is money, right?
The antidote to the one-two combo lie is selling your business through an auction.
Don’t trust a buyer who insists on an exclusivity agreement right out of the gates.
There’s a time and place for everything.
After an auction, you’ll select a buyer who offers you the best price and terms. It’s at this point you’ll sign an exclusivity agreement.
A tell-tale sign that you can’t trust a buyer is when you receive an unsolicited offer.
Buyers love unsolicited offers. Entrepreneurs lower their defenses when they see all those zeroes on the offer.
Not dealing with other buyers and signing an exclusivity agreement sets you up to fail.
Buyers will pull a bait-and-switch in the blink of an eye by doing two things.
What are these two things?
Do You Know The Fastest Way To Lose The Money You Made When You Sell Your Company? Agreeing To An Earn-Out.
Agreeing to an earn-out today robs you of your payday tomorrow – Jeffrey Feldberg
Most buyers prefer to pay you through an earn-out.
An earn-out has the buyer pay you over time and is dependant on certain conditions.
Buyers may offer a higher value if you accept the entire payment, or a large part of it, through an earn-out.
Too many of our fellow entrepreneurs fall victim to seeing all those zeroes and say “yes.”
Saying “yes” to an earn-out is also saying “yes” to kissing your earn-out goodbye.
For many buyers, your earn-out payday is a day that will either not arrive or will have you with far less money.
The moral of the story.
Never ever trust a buyer offering a large earn-out.
Read and prosper from “5 Ways To Spot The Best Buyer For Your Business That Will Make You Successful (And Rich).”
Your future buyer is smart, sophisticated, and experienced. Sellers are naive in thinking that the good-cheer on closing day continues forever.
Say goodbye to that kumbaya feeling in days or even weeks after your closing.
Buyers are quick to remind you of two things.
First, you agreed to an encyclopedia of earn-out conditions in your contract. Second, you didn’t meet the conditions.
Your once profitable company is now less profitable, or worse, losing money.
And the kicker is that there’s nothing you can do.
Your company is no longer your company. Your buyer now owns and controls the company.
Know this and know this well.
Never, ever trust a buyer offering a large earn-out.
Avoid an earn-out at all costs. If necessary, negotiate like the Rockstar you are for as small an earn-out as possible.
Beware Of The Buyer Who Has No Track Record Of Success
Tell me your past, and I will predict your future – Jeffrey Feldberg
Never, ever trust a buyer who has no track record of success.
Don’t fall victim to the trap of believing that a prospective buyer wants to buy your business.
If a buyer doesn’t want to buy your business, why would a buyer send you an offer?
Buyers may plan to enter your industry and compete, or instead, may act on behalf of a competitor.
The reasons vary, but the outcome is to learn as much about your company at your expense and detriment.
What can you do?
Look for a track record of success.
Look for a track record of success in your industry or in buying companies.
If you come up empty on both counts, run as fast as you can in the other direction.
You cannot trust a buyer without a track record of success.
Saying “yes” to a prospective buyer is saying “no” to other buyers. It’s common for many buyers to borrow money to pay for your company.
If a buyer is not able to raise the money required, you have no deal.
You now go back to the other buyers from a position of weakness.
Success in the past is not a guarantee of success in the future, but it’s a great starting point.
There’s a time and a place to trust a buyer.
Never, ever trust a buyer without a track record of success.
Do you know the other tell-all sign that you cannot trust a buyer?
Never, Ever Trust A Buyer Who Will Not Sign A Non-Disclosure
With a written agreement you have a prayer; with a verbal agreement you have nothing but air – Robert Ringer
Selling your business involves time, money, and the sharing of your company information. A lot of information.
By the end of the due diligence process, future buyers know your company as well as you do, or more.
Sharing your company details, including sensitive information, helps you get a higher value.
What’s sensitive information?
Let’s start with all the names of your customers and employees, your profits, and your secrets.
This information, in the wrong hands, could be damaging to you and your company.
The only way you can protect yourself is through a strong non-disclosure agreement.
A non-disclosure agreement is one of the many reasons why its best to work with a Chief Exit Advisor. What you don’t know can and will hurt you when it comes to selling your business.
Do not trust a buyer who will not sign a non-disclosure agreement.
End of story.
Should a buyer break the terms of a non-disclsoure agreement, you can sue the buyer.
A non-disclosure agreement is worth only as much as you’re prepared to defend it. But at least you have options.
The bottom line is this.
Never, ever trust a buyer who will not sign a non-disclosure.
Let’s take it a step further.
You should not trust a buyer who won’t sign a non-disclsoure and run as fast as you can in the opposite direction.
Selling your business is a life-changing event. You have once chance to get it right, and you better make it count.
For your deal to happen you must be able to trust a buyer and the buyer must be able to trust you.
Trust is what starts the process and it’s trust that ensures the deal closes.
Who am I, and how do I know?
I was that kid who started his EdTech right out of school without money, experience, or a team. The truth is I had no business being in business.
My grit and passion kept me in the game long enough to build a successful EdTech.
My success got the attention of a smart, experienced, and sophisticated buyer. I received an unsolicited 7-figure offer based on three times EBITDA.
Something felt “off,” and I said “no” to the offer.
On the spot, I said “yes” to learning the art and science of selling a business.
What I learned shocked me to the core.
The system is set up against us entrepreneurs from the start.
Two years later, I said “yes” to a different buyer with a 9-figure offer based on 13 times EBITDA.
My 9-figure offer wouldn’t have happened if I trusted the first buyer.
How do you know when you can trust a buyer?
I’ve revealed five key traits to help you trust a buyer or not.
What can you do and where do you start?
Start with the first strategy and stay with it until you master it. Master each strategy one-at-a-time.
You can do it. I know you can.
So what are you waiting for?
Here’s to you and your success!
Your BIGGEST Raving Fan,