Part 2: The hidden truth about online business sales ads
What's the biggest problem with online business sales ads?
The fact is that very few serious investors read these ads.
And why would they read them?
If you look at the descriptions of some businesses on these sites and you
read "between the lines" you will find that they are businesses with problems and only the desperation of the owners pushed them to post them, in most cases.
I only meet entrepreneurs who are proud of what they achieved. And so am I.
How hard is it for such a person to ask for help? You can fully understand them.
However, if you look at things from an investor's point of view... would you pay for such a business that is having problems?
Of course, this is exactly what some investors are looking for: businesses with problems that they can take over as cheaply as possible.
This brings us to the second issue: if you are contacted from your ad, you will most likely be contacted by people who will offer you a ridiculous low price, or by intermediaries who will offer their services for a commission.
Usually, that successful commission is 3%.
Do you know this figure?
It's the normal commission for real estate agencies in Romania.
Specifically, you will be contacted by real estate agents converted to working as "business-broker" doing identically as they previously worked with selling homes. After all, a business is also like a building, isn't it?
Not at all! It's much, much more complex.
It's like saying that a decorator is also a painter, an artist, because both of them work with a brush.
So how can you disagree with this proposal?
If they do not bring a buyer, it will cost you nothing. And if they bring one and you sell your business to him, that's only 3% from you. (You might even be willing to pay him 10%.)
It seems the perfect deal for you in every possible way.
But let's see what happens next...
What do you think these "business brokers" will do for you?
They will post, as you did, an online ad on another website and... wait.
They will wait just like you did, waiting for the phone to ring. If it rings, it is OK. If not... it’s all the same to them.
Their involvement is close to zero.
Their calculations are simple: they know they need 30-40 deals to sell one of them and earn their 3%.
So their only goal is to gather 30-40 such businesses in the first phase.
Then they want to double their number to sell 2 businesses in 18 months.
What kind of information can a business broker give about a certain business when he has a "portfolio" of about 100 businesses?
How well does he represent your interests?
In fact, is he out for your best interest at all? That is, is he trying to maximize the selling price of your business and get the most advantageous conditions possible for you?
At first glance, yes. After all, his success fee is a small percentage of the selling price. He must be invested in you then, right?
But he knows that if he insists on getting 1 million Euros, let's say, for your business, he can lose the sale. That is why he will try to convince you to accept 800,000 Euros, for example.
In this case, he certainly gets a success fee of 24,000 Euros by losing 6,000 Euros - for reducing the price by 200,000. It's more than OK for him to do little to no work.
But you will lose 200,000 Euros. And he doesn't even care.
His interest is strictly his commission, not your representation and to get you the most out of the deal.
And if all these end with the best possible scenario for you (with the sale of your business), it will take 1-2 years to finally get to this point.
What will happen to you and your business during this time?
I did a small study on 27 businesses that were for sale. I researched them 1 year or more after they posted online ads. You can read about it here.
In short, 8 of these businesses were no longer for sale because their owners liquidated them at about a third of the value they had originally requested.
For 14 of the businesses, the asking price after 1 year had decreased to 50-60% of the initial price.
The other 5 had still been listed at relatively the same prices. But we all know how much a business whose owner wants to sell after about 1 year is worth: at most, half of what he thought it was worth initially.
Let's do a calculation for a business worth 1 million Euros. If it does not have a strong real estate component included in the price, then after 1 year the entrepreneur will lose about 500,000 Euros of its value.
Dividing this loss of 500,000 Euros by 12 months will result in a monthly loss of over 40,000 Euros.
So... you really have nothing to lose by waiting 1-2 years for a "business broker" to come to you with a possible investor just for a success fee?
How many have told you this so far?
Suppose for a moment that a serious investor reads your online ad and is really interested in your business.
That's one of the best scenarios, isn't it?
Usually, entrepreneurs go through a process of selling a business only once in their lifetime. It's their biggest and most important transaction.
However, they don't really know where to start or how to do it.
On the other hand, an investor or an employee of the business development department of a large company takes over businesses on a regular basis. He sees hundreds of businesses like yours every year.
He also negotiates dozens of times a year. He eventually takes over a few businesses each year.
He has a lot of experience in this. He knows almost all the tricks that can be used to maximize his interest.
Do you want to measure your strength with such a professional?
Or those "business brokers?"
“Then ... what do you suggest we do?”
It depends on you and on your business.
If you think that the one who would take over your business is going to be a young person for whom the father-in-law would be willing to buy him a business like yours as a wedding gift (it's just a hypothetical case, of course) that would mean looking for a needle in the hay wagon.
I know from experience that a much better solution than advertising on business sales platforms is a Facebook ad, posted by an acquaintance of yours (not directly by you) or to create a new account with a different name to keep the confidentiality of your approach.
We went one step further: we looked for a moral story for adults, we translated it into Romanian, and at the end of the story we made the connection with the business for sale.
We failed to sell them. They were just tests.
Why tests? Because the owners of those businesses wanted to pay us only on the basis of a successful commission.
The impact of promoting those businesses was an unexpected success because we paired them with some beautiful stories.
That's why I can recommend this method, if you think that the buyer of your business would be a very hard to find person.
In reality, however, there are very few such cases.
Serious investors do not read online ads for businesses for sale.
"Business brokers" only pursue their own interests–not yours.
In a 1 million Euro business you can lose over 40,000 Euros every month waiting for other intermediaries to sell it on your behalf, only for a success fee.
Professional investors have a lot of experience in taking over businesses, while you are naïve in your first experience.
Better to try through Facebook, linking the sale of your business to a moral story as a medium to spread your message.