08 Oct Why Buyer Interest Doesn’t Always Lead to an Offer
A prospective buyer requests information, signs a confidentiality agreement, and asks thoughtful questions. Perhaps they even meet with the owner, but then they go quiet.
For a seller, that can be puzzling. If the buyer was interested enough to meet with them, why didn’t they make an offer?
At Sam Goldenberg & Associates, we know that getting to the offer stage is more the exception than the rule. Buyers may review many businesses before pursuing one, and some never make the transition from looking to buying. An inquiry is a starting point, and even a productive meeting doesn’t necessarily lead to a letter of intent.
Understanding why interest fades can help sellers distinguish between issues they can address and expectations they cannot satisfy.
The Asking Price Can Stop the Conversation
Owners sometimes want to price their business above its supported value to leave room to negotiate, reasoning that they can always come down or thinking that this provides them with room to negotiate.
That strategy assumes buyers recognize the asking price as a negotiating position. They have no way of knowing that. More often, they take the price as an indication of the seller’s expectations and aren’t willing to invest time and energy in an offer they assume will be rejected.
The seller never gets to the point where negotiations come into play.
An asking price needs to make sense in relation to the business’s earnings, the work required of an owner, and the investment needed to acquire and operate it. Growth opportunities can strengthen the case, but buyers generally want to see how the existing business supports the price before paying for what it might become.
The Latest Numbers May Tell a Different Story
A business may come to market with an asking price supported by its most recent full year of earnings. As the sale process continues, current year-to-date results become available.
Those results may change the picture. Sales have declined, margins have narrowed, or expenses have grown. The buyer is now evaluating a different earnings trajectory than the one that supported the original price.
There may be a reasonable explanation. Seasonality, the timing of an expense, or a temporary disruption can affect interim results. Comparing equivalent periods and understanding what changed are essential.
But if the current figures suggest a sustained decline while the asking price still reflects the stronger year, buyers may lose interest. Sellers need to keep operating performance and pricing expectations in the same conversation.
Can the Buyer Understand How to Take Over?
General assurances don’t answer specific questions. An owner may know exactly how to source products, recruit employees, assign work, and maintain customer relationships, but a buyer doesn’t have the owner’s years of experience or accumulated knowledge. If buyers struggle to understand how the business functions, they may struggle to picture themselves running it.
Financial statements show the results of the operation; they don’t explain how to reproduce them. Before making an offer, a buyer needs to understand how the business makes money and what taking over would require.
A seller who thinks these questions can wait until due diligence assumes the buyer will make an offer without the answers. Practically speaking, buyers need enough confidence in what they are reading and hearing to take that step. Neither side benefits from committing time to a transaction while the buyer is still trying to understand whether the business is a fit.
Some Buyers Are Looking for a Business That Don’t Exist
The “princess and the pea” phenomenon is real. Some buyers examine practically every business that comes to market, only to find a reason to pass on each.
One requires too much owner involvement, while another is too seasonal, too inconsistent from year to year, or requires too much working capital.
Specific acquisition criteria are useful, but buyers searching for the perfect, flawless small business can spend years looking without ever making an offer. Other buyers arrive with expectations that are difficult to reconcile: passive ownership, substantial income, little risk, and a modest purchase price. Many Main Street businesses provide a good livelihood precisely because the owner works in them.
What Sellers Can Influence
A buyer’s silence does not necessarily mean there is something wrong with the business. Location, industry, personal circumstances, and appetite for risk all affect the decision.
But sellers can address several reasons a suitable buyer might stop pursuing an opportunity. They can provide current financial information, explain unusual results, make operating responsibilities understandable, and establish an asking price that the business can support.
At Sam Goldenberg & Associates, much of our work happens before there is an offer to negotiate. We help buyers understand the earnings, operation, and demands of ownership. We also assess whether their resources and expectations fit the opportunity.
Sellers should not assume they will get an offer and then have the chance to explain everything. Often, those explanations are what give a buyer the confidence to make an offer in the first place.
