Why white-collar individual business buyers sometimes present additional risk compared to operators and larger firms
By William Fry
Jan 9, 2024
In Buying a Business
We see many self-funded searchers come from white collar jobs in Corporate America and MBA programs at some of the top schools in the country. These entrepreneurs are smart, accomplished in their own right, and often very knowledgeable about finance.
Nonetheless, they struggle immensely to get a deal under contract. They follow all the tricks in the books: proprietary search, outreach to brokers near them, drafting market offers, etc. Yet, months go by and they keep losing out on deals. Sure, sometimes it's a price war that wasn't worth winning, but oftentimes their offers are at or over competing offers.
So, what gives?
In my opinion, it's the perceived execution risk. When going after deals worth $2-3M+, an individual buyer is up against a buyers who look like them, plus industry vets, strategic buyers in the region, and private equity firms.
Compared to all of those buyer types, individual buyers have the highest perceived "execution risk". No matter how fancy of a degree a buyer has or how impressive of a firm they work for, most LOIs from individual buyers look the same.
It's hard to weed out the great from the good. It's hard to know which LOI represents an intentional offer. It's hard to know what buyer really has financing lined up. It's hard to know what buyer is truly going to put in the elbow grease to learn the industry.
The result is that even the best individual buyers get passed on in favor of seemingly less risky buyers.
Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.
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