Welcome back to Becoming a Better Business Broker in 30 Days!
This concise series title describes exactly what we hope you get out of it - becoming a broker who can close more deals with less work.
If you missed yesterday, check out Becoming a Better Business Broker Day 12: How To Handle Multiple Offers.
If you've cut your teeth in Main Street brokerage long enough - you'll know that receiving multiple offers (or running an auction process) is not the norm.
You can, however, increase the likelihood of receiving multiple offers, even on the smallest of deals - with a few of these strategies 👇
Winning Multiple Offers From Buyers
What if I told you we were able to generate 2 full-price offers for a chocolate shop doing $150,000 in revenue (in a town with a population of 5,000) in 5 days - would you believe us?
We'll be honest, we wouldn't believe us either. But - as we've done throughout this entire series - we're backing everything we say with proof.
You can read the case study here.
While it is unusual for a micro-business to receive multiple offers, we've done it more than once. Here are a few of the strategies we use to create a competitive environment for listings, even in the Main Street brokerage market.
1. Price to Sell
While we hate the phrase, "it's priced to sell" when it comes to Main Street deals - buyers will get sticker shock fast. Especially as many buyers are taking on a significant amount of (personally guaranteed) debt. As such, they view each multiple of SDE or EBITDA as the number of years until they get their money back.
Now, if you know anything about Return on Invested Capital (ROIC) or compound growth - this isn't how it works in reality and you can't educate everyone. To overcome this problem, we've developed the following framework:
- Under $100K SDE: don't take on the listing, match them with an Exit Planner or ValueBuilder consultant to get them to a minimum of $100K SDE before taking the listing. Unless they are simply wanting to sell all their assets + inventory at fair value.
- $150K - $200K SDE: Now there starts to be enough juice to squeeze for a potential buyer. We're entering, 'replace my crumby corporate America job' with owning my own business with much higher growth potential. Personal take of the writer: I honestly don't think industry earning multiples matter at this size of deal. If a deal is under $200K SDE they (anecdotally) move fast at 1-1.25x earnings, normal speed at 1.5-1.75x, and much slower at anything above 2x. If you try and sell at $200K SDE business for 3x - it could take a year and/or more likely never sell.
- Above $250K SDE: use DealBuilder to pull comps relevant to your client's industry code. Also, determine if using SDE or an Adjusted EBITDA (normalized General Manager salary) is a better approach for your client's business - as they are now approaching enough cash-flow to (potentially) afford a GM.
2. Create a Comprehensive Marketing Package
This is a super underrated way to get fast buyer interest, particularly for Main Street deals. We'll be honest - the presentation standard in our industry is low. So low, that often buyers remark DealBuilder's AI-generated CIMs are, 'The best presentation they have ever seen'. Now, this may seem like a humble brag - but it's not. Because a human-generated CIM (in theory) should be able to shoot the lights out of our system.
Unfortunately, many brokers are not super talented in presenting information (hence why DealBuilder exists). Even worse, it gives a terrible first impression to a buyer.
- Confidential Information Memorandum (CIM): Prepare a detailed CIM that highlights the business's strengths, financials, and potential for growth. A well-prepared CIM can attract serious inquiries. You can find an example of the DealBuilder digital CIM here.
In the case of our small-town chocolate shop - our system helped prepare an adequate buyer presentation with all the information both buyers needed to first book a buyer-seller meeting. Then, in short order, they were comfortable submitting an offer based on the detailed nature of the CIM. Avoiding the dreaded never-ending list of questions that a buyer may propose pre-offer.
3. Leverage Digital Marketing
- Online Platforms: In addition to DealBuilder, list popular online marketplaces and business sale platforms like BizBuySell and BusinessesForSale.com. The wider the exposure, the higher the number of submitted NDAs, more buyer-seller meetings, and more potential offers.
Another way to generate 'hype' around your listings is to share interest metrics with your buyer list shortly after releasing a deal. For example, if you release a deal on Monday to your newsletter and receive 34 NDAs before the weekend - make this a celebratory post on Social Media and in your next newsletter.
Not only does this help with sell-side prospecting, but lets your buyers know they are not alone in the deal process. Build as much pre-emptive FOMO as you can.
4. Speaking of FOMO - Create Urgency
- Limited Time Offers: If the Seller needs to sell quickly, make sure to indicate that the business is priced for a quick sale by a specific date. This can encourage buyers to act quickly.
- Notify Buyers of Offer Submissions: While it may be tempting if you receive an offer from a buyer, don't sprint (metaphorically) to DocuSign just yet. Instead, email all buyers who have submitted an NDA that an offer has been received but not accepted yet. End the email with, "Let me know if you'd like an opportunity to submit an offer for this business or if you are no longer interested at this time."
- You'd be surprised how many times we get frantic emails from buyers saying, "I'm sorry! I've been meaning to reach out about submitting an offer but my vet's cat got sick and now I am taking care of my vet's cat, which seems strange and unprofessional - but no sorry I am interested in submitting an offer!"
- It is also important everyone has a fair shot at submitting an offer. It is not fair to a diligent Buyer if the deal is taken from them by the Buyer throwing out LOIs like candy (the sole reason to get deals under exclusivity).
How do we do it? We let DealBuilder auto-generate email notifications to all Buyers with CIM access that an offer has been submitted. This has proven, on multiple occasions, to drive Buyer FOMO through the roof - so just get ready to have your phone blow up 😂
Conclusion: Maximizing Your Client's Options
We hope you take something away from these strategies, as they have certainly helped us in the past. By doing adequate prep work, you can significantly increase the chances of receiving multiple offers on your listings, providing your clients with options and potentially better sale terms. As a broker, your ability to generate interest, manage negotiations, and close deals efficiently will set you apart in the competitive landscape of business brokerage. Stay proactive, stay prepared, and let your expertise guide your clients to successful outcomes.
Keep following us along on this crazy journey on Day 14, Building A Business Broker Support Team.
If you want to learn more about automating your business brokerage with DealBuilder, please visit our site or book a demo here.
