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As a buyer, if you are bullying small businesses, you will never be able to scale your company to a strong level by pressuring businesses to sell.
When people ever feel like you are hustling them, it will come back to bite you every time. Guaranteed.
Now, you can’t be a pushover either- you need to know when a particular deal becomes overpriced –
– and that’s when you can get out. Stand your ground and stick to your knowledge…
But resist the urge to be a hustler!
LOI ( Letter Of Intent)
One way to make your intentions ethical and moral is by having an effective LOI-- or Letter of Intent.
It is not an official deal or offering- but you should treat it as such. It is an offering that you make stating what your expectations are.
When you structure an LOI - you need to make sure that you are selling them. Sellers need to feel like they are getting a good deal from a quality buyer. You want to personalize it to the seller and the buyer.
Pro tip: Make sure you are solving the sellers problems. Lift the burden. Make it easy for them.
Always be ready to move quickly after an LOI is signed. If everything lines up nice and neat then you need to be ready to buy!
Sometimes in Private Equity, the worst kind of deal is when you are bidding against other people.
Why?
Because the price usually gets inflated. You need to predetermine and stick to your MAX PURCHASE PRICE. Once you determine that - then you can start the negotiation process.
An LOI will usually have a couple of key things included:
- It needs to have an expiration date. Set a timeline and follow it!
- It will also use have a statement saying, "This offer is contingent on my ability to raise financing."
As a buyer, it's fun to follow that statement with a...
'If the business is as good as you say it is, then you shouldn't have any problem raising money.'
Your objective with an LOI is to be able to start the due diligence process. The due diligence allows you to investigate every portion of the business.
Never put in an LOI that you aren’t serious about- because that can certainly damage your reputation.
Pro tip: If you are getting into your due diligence and realize that you don't want to move forward..
Never ghost a broker or a seller - You should always be straight up.
Don’t disappear. Be straight up. Say:
“I definitely like the business for X, Y, & Z reasons… but here are some things I don’t like… Please let me know if things change, or if you decide to lower your price, but let’s definitely stay in touch.
And you never know! The terms might change - they might counter offer with more favorable terms if they are desperate to sell!
If you know for a fact it’s not going to work- just tell them! At least they know you are serious. Just say hey, this isn’t going to work because of XYZ…
And you maintain a good relationship with that broker.
Plus, if you keep a sound reputation, it'll be easier for you in the future!
In my course I go through the next couple steps of acquiring a business such as: making an offer, structuring a deal, deal analysis, and working with the brokers.
Thanks for the read!
