Deal flow management for education

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today on the show I've got a great question from a viewer all about managing the problem of having too many different opportunities to look at how do you make sure that you end up with the best business let's take a look I'm David C Barnett and you're tuned in to small business and deal making the podcast YouTube channel and blog where I talk about buying selling financing and managing small and mediumsized businesses while controlling risk so if you're looking to take control of your future through buying a business one day or if you already own a business and you're looking to grow or exit you've come to the right place I talk about interesting things I talk to interesting people and I answer your questions every week right here so be sure to hit like and be sure to hit subscribe and let's get to it are you thinking of growing your business or beginning a journey into entrepreneurship take a shortcut to success by buying an existing and profitable business the right way visit business buer advantage.com and learn more about my online training group coaching and Consulting Services designed to help you win all right so I got a great email question from someone that I've had a few private one-on-one conversations with and uh I wanted to read this question uh because it is a good one and uh I I don't have a video about this so it's going to it's going to add to the uh to the content online so he writes to me he says thanks here's my current dilemma let's see if you have a video on this and I don't so I'm making one through my network I made contact with an industry Insider who I took out to lunch in hopes of hiring him to assist with the due diligence process okay so in my due diligence videos I sometimes mention finding an expert consultant from an industry if you're not an industry expert and that's exactly what he's talking about in the course of the conversation turns out the business he helped build alongside the current owner and worked for for 25 years is up for sale it's four to five times bigger than the business I'm I'm looking at we'll call that business a uh and has been in business for nearly 50 years I have no idea of the profitability yet he's made the introduction and I've had a brief initial call with the owner unfortunately the owner's on vacation so our next conversation and hopefully our on-site visit is set for two weeks from now okay in the meantime the broker of the initial company company a is saying they've received two offers and wants to know if I'm looking to make one while they're considering these I told him I have a number in mind but want to explore this other potential opportunity um and so you know basically he's asking me now what would I do would I a make a verbal offer to give them an idea of what I'm interested in doing B submit an offer to purchase and this is a form that that is part of the business buyer Advantage uh on online training submit your offered a purchase form unsigned to outline the deal structure or C tell them that I'll get back to them after I've had a chance to see if the other company is worth pursuing all right so great question um and uh we're GNA we're going to go into these one at a time so when you're when you're looking at more than one business that's for sale um you have to kind of think about another sort of Market where there are multiple opportunities to do a transaction with multiple people but in all likelihood you are only really able to do one transaction so a great analogous kind of marketplace would be the dating Market okay so you can you know go out and meet a bunch of potential Partners um you know go meet a bunch of pretty girls uh but you can only get married to one right and so obviously what everyone is trying to do in the dating Market is they're trying to end up with the best possible mate that they can just just like in the buying a business right now ultimately you can buy more than one business and over the course of time you can acquire more roll them together Etc but you know at this moment in time for most buyers out there they've got the capital the credit the resources to do one deal and really that's what they've got to focus on is getting that one deal done and then uh probably it's going to take a few years of building the balance sheet of that company to go and then do another deal so let's just think about this um so the three options that he gave me were make a verbal offer to give them an idea or submit an offer to purchase but don't sign it and three tell them I'll get back to them after I have a chance to see if the other company's worth pursuing so let's think about the other party in you know of company the seller of company a in receiving any one of these three things so of verbal offer so they've got two written offers and now you're going to give them a verbal offer to let them know where you're going to be well you know you could test the broker you could say hey um I don't know what those other offers are I was thinking about offering $400,000 do you think that offer would be competitive right most of the time regardless of what the other two offers are going to say the broker will say well um it's like if you're if you're 400 is half of what the other offers are the broker might say don't waste your time right okay um but if the other offers are for you know 420,000 and 390,000 the broker is going to say yeah make your $400,000 offer okay because it's it's in there and it's going to be competitive and the broker obviously is trying to get the deal done and wants as many potential offers as possible so that could be an easy test submitting the offer to purchase unsigned I I don't understand the the value in that right um and and let's get into number c tell them that they get back them after I have a chance to see if the other company is worth pursuing so think of it again from the seller of company A's point of view what you're basically communicating to them is you're saying I really don't like your business as much than this other one um you just wait maybe I'll get back to you if this other one doesn't work out so that isn't going to make anyone feel good let's talk about dating again if I meet Sally and uh start talking to Sally and you know we start exchanging text messages and I take her out for coffee or whatever and then I meet Laura who I think is much prettier and then I call Sally and say listen I we've been having a great time but uh I just want to I want to spend more time with Laura because I think she's prettier and then if it doesn't work out I'll come back and date you again like Sally's not going to be happy about that regardless of what she thinks me she's she's her opinion is going to sour right because of the way I've treated her in that in that um conversation in that uh in that back and forth right and so you have to be mindful of your relationship with the seller uh if you guys get anything from the videos that I put out it should be that buying a business or selling a business is a really hard thing and in order to do it there has to be the buyer and seller working together to overcome the various different challenges that are going to come up throughout the process of doing the transaction and so in order for them to work on this project together and get the deal done people have to have a working relationship in which they trust each other they develop a respect for each other Etc and so you always have to be cognizant of that relationship with the other person so let's let's reframe this I'll kind of give you uh an idea of how you should be thinking about this problem of talking with more than one seller at the same time the the sellers don't have a problem telling buyers when they have more than one offer right why is that well because they know that they've got a business and hopefully it's a good business and it's profitable and they don't mind letting people know that many people are pursuing the business it would be like the pretty girl saying you know I have all this attention from all these men right it's not a secret if she's a pretty girl we can we can just assume that you know lots of men are interested in her right and so so that's kind of public but for a buyer to kind of balance that footing and and give themselves power in the scenario as well um it's not a problem to say to a seller I'm looking at multiple businesses that are for sale right right which is different than saying this other one I found is likely better than you do you see the difference between the two so for buyers to say I'm looking at multiple deals all the time I don't think is a problem and I think that it's something that you should say so that you command some degree of respect or credibility with Sellers and you let them know that they don't have a monopoly on your attention that you are looking at multiple other businesses that you might buy and so here's the other thing is you know when you're out dating that it's highly unlikely that going on a date with one woman is going to mean that you're going to end up marrying her right like that's the goal but we know through our own experiences and through everything that we see around us in everybody else's relationships that you have to date a lot of different people in order to find someone with a high degree of compatibility and then you have to have an alignment of your life goals and then you have to have an alignment of a lot of other factors you know I've seen people like each other have similar goals but then because of career family pressures you know uh maybe former Marriage Partners exes and children and all that kind of stuff the relationship still can't work because there's these incompatibilities that surround them that that make it so it's hard to work so the same thing happens with buying a business you could find three businesses that you really like but your Banker doesn't like one of them or some other thing comes up you know you're halfway through a deal with business number two and some issue with respect to their taxes comes up and suddenly they can't sell or or there's a title problem or they end up in a lawsuit or like these things happen and so what then is the proper uh format the proper format is that you always look at multiple businesses you always pursue them and you always negotiate for them based on what it is that they have to offer so business a in this situation U he's already looked at it he's already done some investigation he's already figured out what it's worth to him the advice that I gave him was pursue the deal create an offer or multiple offers and submit them and see how it works out in the negotiation while you also carry on with opportunity B with the second business go and have that meeting submit the opportunity so what happens then is if opportunity looks B looks really good and then you find out one of your offers for opportunity a is accepted nothing you just keep pursuing them both because we know that getting a a letter of intent or getting a deal accepted is hard we also know that a lot of businesses don't survive due diligence right and so if you think that opportunity B might be a good one then what you would do in your in your offer for opportunity a is you would give yourself a longer window of due diligence so that you give yourself more time to complete negotiations for opportunity B right so you got an accepted deal on a you're still negotiating for B you start to do due diligence on a due diligence could fail because of something you find but if it if it doesn't it still looks good you keep working on it so that you're then able to make your offer negotiate on B and start due diligence on B because you could then find something in B you don't like now now if you manage to jump all the hurdles on both of these deals then yeah you're going to be in a position where you're going to have to choose but it's not at this point it's not upfront right so to get back to the dating analogy you know you you meet both of the women you take them both out for coffee you take them both out for dinner you take them both out to a movie you get to know them both and as you get to know them you realize hey you know what I this woman is I like her more or she seems to treat me better or what have you and just through the natural process of working through the exercise um a lot of the time the the field will thin you know the opportunities will fall away so professional business buyers um people that are from the world of private Equity I've interviewed a few of them on my YouTube channel over the years and one of the questions that I've asked several of them is just how many deals do you look at right and it's not uncommon to hear somebody who work Works in a private Equity Firm say that they look at 40 50 a 100 files to find one right and so the the deal flow issue is an important one because the one thing that gives you the best opportunity to find a good deal is to have good deal flow and this is why you know working on getting things to look at and making offers is a number one priority for someone who's looking to buy a business and you know in my in my group coaching program for example a lot of the members of the program are doing proprietary search they're mailing out letters um U you know they're going to Brokers they're going to Industry events they're meeting people they're using tools like LinkedIn you know they're they're networking actively meaning that they're calling people in an industry and just asking you know do you know of anyone who might be selling soon like they're doing all these kinds of activities to create the deal flow so that they have options so that they can work on these deals knowing full well that things will fall apart when you don't have deal flow that's when you become uh faced with the problem of the scarcity mindset a lot of people that I will meet through uh through online interaction they'll say I can't find a business or it's really hard to find a business and when they find one that's halfway decent they then feel like they need to pursue the deal because they so rarely see a good business and when I you know when I ask them what are you doing to find deals invariably I'll find out that they've signed up for some kind of email alert from one of the big business selling websites well we know that four out of five deals that happened don't involve any intermediaries at all and most of that would also not include those big business for sale websites so they're they're basically looking at 20% of the market and they're waiting for the website to push something out to them along with all the other people who are in that same you know using that same search methodology uh and then they end up showing up to look at a business that might be okay but so have another you know 50 people another 50 buyers and the only way to get the business is to pay too much or you know not agree to terms that work for you in one way or another and so if you want to have a problem like this a dilemma like trying to figure out which of two opportunities to pursue then you got to build your deal flow pipeline anyway thank you very much for this question I know I haven't identified the the the person in any way and that's to maintain their confidentiality but um yeah keep the questions coming more than happy to answer them and if you are having trouble with deal flow if you want to have more things to look at then you should be signing up for business buyer advantage.com do the online course and um sign up for the group coaching program because basically in the group coaching program deal flow is what everyone's working on and so a lot of our conversations it's talking about deal flow that the members are having and the other part of the conversations are talking about their interactions with sellers Brokers Etc uh it's a great community of people that are all doing the same thing spread out all over the place mostly in the US and Canada but we do have some uh some members from some other countries as well and um just a great place to to share get feedback learn from others and uh many people in the group have done deals and they're still in the group because they're doing more anyway with that we'll see you later we'll chat soon bye so how can you learn more about buying selling financing and managing small and medium-sized businesses easy go over to my blog site davidc barnet.com where you can learn more about me and how I work with my clients you can learn more about my books and courses that I've prepared for you you can find out how to subscribe to my email list the YouTube playlists and more there's literally hundreds of hours of content there all for free and I'd love for you to be my guest special thanks go to Mark Willis at Lake growth financial today's video sponsor Mark helps people better manage their personal and business finances through the bankonyourself insurance strategy this is something I've done personally and I've seen others use it successfully for years go to new banking solution.com to find all the interviews I've done with Mark and learn more about the advantages of these programs while there sign up for a free consult consultation to learn what this solution might look like for you