How To Approach a Business Owner About Selling Their Business

Business owners don’t get approached by buyers or growth partners very often. When they do get approached, they typically don’t know what to do. If you want to approach a business owner about buying their business, you will likely need to guide the owner.

To help land an appointment, think of a way to offer value in exchange for their time.

Approaching a Business Owner

1) convey your intent
2) be prepared
3) be transparent
4) be helpful

whether or not a business owner is Realistic, treat them with respect. when they come around to the reality of the market, they’ll want to deal with someone who didn’t piss them off.

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1. Convey Your Intent

You may approach an owner with a singular focus, or you may wish to present several possibilities. The more focused you are, the easier it is to convey your message. For example, if you approach the owner of an HVAC company and your criteria include 1) over 90 percent commercial work, 2) greater than 75% of revenue from recurring maintenance, and 3) you need someone at the company to hold the mechanics license for at least 3 years, you will find out quickly if the owner and his business meet your criteria. Because you are focused, you need to play the numbers game and contact many owners.

On the other hand, if you are open to more possibilities, you increase your chances of finding common ground with an owner, but you’ll need more finesse in your approach. For example, if you are open to either acquiring a specific business you admire or entering into a consulting or employment arrangement with a percentage ownership, you’ll need to practice conveying these very different scenarios. You may want to explore the owner’s plans by floating out topics such as a purchase, partnership, joint project, consulting, licensing, or expansion. The best approach is to state that you are open to several arrangements, but lead with one. You’ll then need to read the owner to determine when and in what order to present your scenarios.

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2. Be Prepared

First Impressions are critical. If you think through the various ways the conversation can go, then you can prepare scripts, objection handlers, and first and second level questions in advance. Anticipating the owner’s questions will go a long way to gaining their confidence.  Have a buyer’s resume prepared for when the owner starts asking about your background and qualifications. Read about essential tips for buying a business and get to know the various steps from initial engagement to desired outcomes.

As the initiator of these conversations, you need to be psychologically prepared for rejection, objections, indecisiveness, and dead ends. You must be patient with the process, and with each owner. Even if you have a specific business you want to target, you need to be comfortable developing a pipeline of opportunities.

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3. Be Transparent

Share your goals with the business owner in a transparent manner. Whether your goals are specific or more general, let the owner know. If you are highly focused, share your specific criteria. If you are more open, find a way to convey that you are interested in a discovery call, and that you will not waste their time. The more the owner senses transparency, the more they are likely to open up and the sooner you are both going to find out if there is a match. You can even be transparent about your pipeline. Letting the owner know you are talking to others conveys that you are serious, on a timeline, and … well … transparent! It also leaves the door open for future conversations with this owner as you continue to explore the industry, even if you do not pursue this owner’s business.

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4. Be Helpful

Your ability to coordinate a smooth interaction comes from being prepared. Yet you do not want the owner to feel you have the upper hand. You need to be an educator, coach and psychologist. Be genuine and deliver on your initial promise to provide some benefit to the owner in return for their time. Items of value may include:

• Offer to sign their NDA if they have one (unlikely) or you provide one of your own
• A summary of your industry findings in a .pdf document that contains one or two nuggets, not just a list of the obvious
• A summary of key take-aways from industry competitors (your pipeline of opportunities) without naming the companies you spoke with
• An overview of what you and/or other buyers value in a business
• A checklist of documents that you and/or other buyers may request to evaluate a business

You can even ask the owner if there is anything you can do for them. They may have something in mind that caused them to accept a meeting with you.

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Why Would I Approach an Owner About Selling Their Business?

Perhaps you heard through a Chamber of Commerce mixer that a business owner was nearing retirement and it sparked your interest. Or perhaps you always wondered what it would be like to run a specific business that you frequent or admire. It makes sense to assess your skills and motivation, understand where you are in your thinking about a business acquisition, and why you might want to contact a business owner directly. Here are some archetypes of buyers who approach business owners and their thought processes. If you can relate to one of these archetypes, take note of the tips below.

Learn how to step into the owner’s shoes.

– but ask first, do not assume

The Bargain Hunter		If this is you,
1. Best deals are off market 2. Public listings contain underperforming, risky or overpriced businesses 3. Owner will talk to me to save on a broker commission		be prepared for the business owner to contact a business broker, CPA, attorney or other professional to assist in the discussions read about How to Buy a Business For Sale By Owner and Tips to Find Businesses Not Listed for Sale
The Explorer		If this is you,
1. My goal is to learn, explore and understand several businesses 2. Not sure what I want to buy 3. Not sure if I will buy 4. Brokers are not helpful since I’m not focused		spend timing crafting items of value and messaging that will engage owners narrow your choices to businesses that are attainable and fit your skills and interests read about Essential Tips for Buying a Business
The Driver		If this is you,
1. I prefer direct communications with owners 2. Brokers are just middlemen 3. There aren’t not enough publicly available listings that fit my criteria		summon the patience to deal with owners who are unprepared to deal with you, the driver read about How to Buy a Business For Sale By Owner and Tips to Find Businesses Not Listed for Sale

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How Often Do Business Owners Get Approached About Selling Their Business?

As a business broker, I have talked to owners who have been approached by Buyers. However, these are mostly financial buyers and occasionally strategic buyers. Financial buyers are typically professional buyers such as private equity groups with staff dedicated to searching for acquisitions. Other financial buyers may be family funds, entrepreneurs backed by a search fund, or high-net worth individuals. These buyers are often targeting businesses with over $1M in profit, possibly lower if the business is a bolt-on to a larger platform business already in their portfolio. On the smaller end, businesses may attract talented entrepreneurs planning to use SBA loans.

Many owners of businesses being targeted by these financial buyers, especially in the $2-10M revenue range, do not have much experience dealing with financial buyers. If they have dealt with financial buyers in the past, their experiences were often less than stellar. They may have felt undervalued, talked over, or uncomfortable with proposed deal structures. Owners were most likely unprepared and may have sensed impatience on the part of the buyer despite the buyer initiating contact. For those owners that went deep into the process, they may have discovered unpleasant surprises, an overwhelming volume of requests from the buyer and /or their investors, and a cold approach and lack of connection with the buyer.

Owners of smaller businesses may have been approached by smaller buyers. Sometimes this works out, but a lot of the feedback I hear in these cases is that the buyer keeps dragging their feet and is noncommittal. More often than not, owners of small businesses under $2M in revenue have never been approached by any serious, qualified buyers.

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What is the Mindset of an Owner When You Approach Them About Selling Their Business?

When you approach a business owner to explore opportunities to buy their business, you will find a range of reactions and mindsets. Owners may be busy, stressed, bored, open-minded, or suspicious. Most will not be accustomed to calls like yours. Many will have no idea what their business is worth. Others will have an inflated (or, less often, deflated) opinion of value.

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How Will An Owner Respond When Approached About Selling Their Business?

A likely response from an owner is for them to ask you how much you would pay for their business. Be prepared for this question surprisingly early in your interaction. Let the owner know you can provide an offer range after learning more about the business. Other than that, here are some common responses.

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How Do I Communicate The Steps in Buying the Business?

A step-by-step overview lets the owner know that you are organized and know how to “lead the dance.” More, importantly, setting expectations will go a long way in keeping your conversations on track. The more the owner is educated, the less surprises and disappointments that could derail your interactions. A structured approach reinforces your value and lets the owner know you will not waste their time.

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What are the Outcomes When Approaching an Owner About Their Business?

When approaching an owner, consider these potential outcomes and share them with the owner to find out what they may consider or rule out.

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Conclusion

This is just a primer on how to approach a business owner about getting involved in their business all the way to an outright purchase of their business. The reality is that it will be very challenging to drum up interest, especially for deals other than an outright purchase. While there are many professional buyers for larger companies who will contact owners in a systematic fashion, there are few proactive buyers for main street businesses who will do the same.