Does it matter why an owner is selling their business? This is a question that comes up all the time and, sorry to break it to you, it doesn’t really matter what the seller tells you.
When I was out looking for a business to buy I would usually end up talking to my wife and asking her what she thought about the company. One of the first things she would ask is why is the seller looking to get out of the business.
The first few times this came up I would tell her whatever the seller told me about why they were selling, but then I realized something. It ultimately does not matter, and here is why.
There are lots of good reasons why someone wants to sell. I often heard sellers tell me about health problems.
I especially remember a seller going into painful detail about a neck surgery they had and how it was difficult to work anymore.
I felt bad for the guy, listened to the story, and generally believed him. His explanation was the truth, or he was the best actor I have ever seen.
Here are some good reasons why a seller is selling
- Health reasons
- Divorce (sorry…I think?)
- Moving out of the area
- Getting old
- Tired or bored with the business
- Selling to do something else
- .. there are probably a few more, but you get the idea
Bad reasons why an owner is selling their business
- The business sucks and is declining
- A major competitor is moving next door
- The employees are difficult to work with
- Customers are leaving
- Something bad is about to happen to the business
- The business is not really making money – which they are hiding
- Anything that has to do with three capital letters, (IRS, FBI, DEA, NSA, Homeland Security, Space Force)
- And my personal favorite – “I am leaving the country for undisclosed legal reasons” (a seller actually told me this once)
Do your due diligence
Expert Tip – Here is the most important thing to know about why a seller is selling… If it is on the “bad reasons” list, not only will they usually not tell you. they will go out of their way to keep you from finding out.
That is why due diligence and paying attention when you meet with a seller are crucial. Most people are decent at telling one lie but generally can’t tell a whole fabricated fairy tale very well.
If a seller is selling the business without a broker, it is a little riskier. A broker is professionally and legally bound to tell you about any material problem with the business… if they have been told about it.
The reason why they will tell you is that they could be sued after the deal if they knew about a problem and did not tell you. So if you really want to ask why a business is for sale, ask the broker, they will tell you or tell you they don’t know and advise you to ask the seller when you meet them.
Go deeper
If for some reason you need to know if a business seller, loved one, or foreign agent is lying to you, you may want to check out this book: Spy the Lie: Former CIA Officers Teach You How to Detect Deception.
Just know that we are not responsible for what you learn by using your newly found secret CIA mind-reading tricks…
The bottom line
Here is the last piece of advice. Don’t rely on what a seller tells you, do your due diligence, check all the facts you can, and get professional legal help if you need it. Almost all of the sellers I have met are mostly honest.
The reason I say mostly is that they will all fudge this or that or leave something out that makes their business look bad. This is to be expected. When it becomes a problem is when they lie about something big that will have serious consequences for the new owner.
Again, do your due diligence, concentrate on issues that really matter and you will be fine.
Now get out there and change your life!
