Will Rogers once said that “you never get a second chance to make a first impression”. Whether you realize it or not, that is extremely valuable advice. When reaching out to a broker of an internet business brokerage firm, such as W3 Business Advisors, you must understand that we usually interact with hundreds of prospective buyers that are interested in any particular online business. Unlike a local or regional brick-and-mortar business, which has a limited pool of prospective buyers, online businesses attract buyers on a national and sometimes international level. Therefore, you should realize that there are usually other serious buyers looking at the same website business that you are. That said, we have come up with a list of “Don’ts” for serious buyers to consider when interacting with website brokers.
- Be truthful – This isn’t our first rodeo and we can usually smell BS from a mile away. If a broker asks you how much cash at closing you have for a business and your response is that it’s irrelevant because you have investors that you can go to if you need to, we know that you are a newbie tire kicker that likely does not have enough money to buy a business and/or you do not have your financing in place. We are extremely busy so please understand that we do not have the time to waste on buyers who aren’t really serious, qualified, or ready. Once an online broker knows that a prospective buyer is exaggerating and is not truly serious or qualified, it will not bode well for future interactions as they will not waste their time on them in the future. If you are in fact serious, then be truthful and the broker will likely be very accommodating and will want to work with you.
- Do not copy & paste generic questions and send them to a broker – Unfortunately, this does occur and many times, a prospective buyer will send over the identical questions for multiple web businesses he inquires about. We try to be as comprehensive as possible and answer buyers’ questions with detailed answers, and this does take the brokers’ and the sellers’ time. Again, if we reasonably suspect that a buyer is wasting our time, we will not take him or her serious in the future. If you are really interested, then take your time and ask valid questions because it will convey your seriousness.
- Do not ask questions that are already covered in the prospectus – Other internet brokers may not put much time into their CIMs, but those who have viewed our prospectuses know that we certainly do as we try to be as transparent and comprehensive as possible. Before asking a broker questions, put some time into reviewing the prospectus in detail and in its entirety because if you do ask a question that has clearly been covered in the prospectus then we will know that you did not read it , which does show that you are not very serious about that business.
- Do not make an offer prior to asking questions – Some buyers will make an offer immediately after receiving the prospectus without asking any questions about that business. To a seasoned internet broker, this is a red flag as it is apparent that the buyer is just trying to tie up the business during an exclusive due diligence period, which he will use this time period to either try to obtain the money for the purchase (he likely does not have it) or to negotiate the deal down. With this type of buyer, they will then find something that they don’t like about the business (they often invent something), but something that they easily could have discovered if they read the CIM in detail and if they actually took the time to ask some valid preliminary questions. An experienced broker will vet buyers who make offers and will make sure that the buyer isn’t just tying up the business and wasting everyone’s time. He will do his homework and make sure that the buyer is serious and that there is a high probability that he will close the transaction.
- Don’t ask unrealistic requests – An experienced broker knows that he does not have a serious buyer on hand when the buyer asks for sensitive information such as tax returns, customer lists, supplier information, and other potential trade secrets prior to making a valid offer. You can do enough preliminary due diligence without such information prior to submitting an LOI and can review the relevant documents during the actual due diligence period. All serious buyers understand that it is unreasonable to ask for such prior to due diligence.
- Do not submit a one-sided LOI – Again, you are not the only one looking at a particular online business, so if you do make an offer, then do your best to do so with terms that are as fair and neutral as possible. If a buyer’s LOI does contain one-sided terms, which obviously only favors them, then we will know that they will be very unrealistic and difficult going forward and will likely be impossible to work with when getting to the purchase agreement. Therefore, we would much rather prefer to work with another buyer who appears much more reasonable. Try to have open and reasonable expectations to how the transaction works and the logistics of it. It is not solely about the price offered and agreed upon, because the terms of the transaction, such as cash at closing, time period to close, earnest deposit, due diligence period, etc. are also very important variables to all parties involved.
There are other red flags that turn off brokers and sellers but if you are a serious buyer and follow the advice above, and also show that you have reasonable expectations, then you will indeed be taken seriously and be given the opportunity to be considered a desirable buyer for a highly-coveted business, where there is ample competition and a crowded playing field.