413 - The Most Dangerous Deal Is the Only Deal You Have!

0:00There is a saying my mentor Dan Pena has used for years. If you want to do a deal badly enough, you'll do a bad deal. And after more than 30 years in business acquisition, I can tell you that is absolutely true. In my recent video, I talked about three red flags that I think every business buyer should treat as gates. Is the seller motivated? Does the company have enough revenue? And does it have sufficient profitability? If the answer is no to any one of those gates, you should seriously consider turning around and looking for another opportunity. But there's a problem. Those gates only work if you're willing to close them.

0:44And one of the biggest reasons buyers don't close the gate is very simple. It's the only deal they have. Think about what happens. You've spent searching for deals for months. Finally, somebody sends you financials. You have a couple of conversations with the seller. Maybe you visit the business. You start thinking about how you could improve it. And you picture yourself owning it. And before long, something very dangerous happens. You're no longer evaluating the deal. You're trying to make the deal work. And there's a huge difference. Maybe the seller isn't particularly motivated. but you tell yourself he'll probably become more motivated as we get further along.

1:31The revenue is below the minimum you established when you started your search, but you say, I think we can grow that. The margins aren't nearly as good as you wanted, but you say there are probably expenses we can eliminate. Do you see what's happening? Your criteria hasn't changed, but your willingness this to enforce them has changed. Why? Because you don't have another deal. Scarcity starts making decisions for you. And that's why I tell mentees something that may initially sound counterintuitive. When you find a deal, don't stop looking for deals. If you're having seller meetings, keep prospecting.

2:15If you're negotiating an LOI, keep prospecting. If you're in due diligence, keep prospecting. Don't allow one acquisition to become your entire pipeline because having alternatives gives you one of the most valuable things you could have in a negotiation, and that is the ability to walk away. And there are some warning signs that you're losing that ability. If you find yourself explaining away problems you would have rejected six months ago, pay attention.

2:49Bruce Whipple:If your valuation only makes sense because of improvements you're going to make after closing, pay attention. If you stop prospecting because you're spending all your time trying to close this particular deal, pay attention. And especially if you're thinking, I can't walk away because I don't know when another opportunity will come along, pay very close attention. That's not analysis anymore. That's emotion. And emotion can become very expensive in business acquisition. I've been involved in a lot of turnarounds, and they are usually very difficult. They usually take more money, more time, and more management attention than you thought they would.

3:36So when somebody tells you, Bruce, I know the margins aren't very good, but I can fix them, my response is pretty simple. Maybe you can. But why buy a business you have to fix when you can spend that same amount of time finding a business that's better?

3:55Bruce Whipple:Your job isn't to buy a business. Your job is to buy the right business. And there's a tremendous difference. So remember the three gates I talked about previously. A motivated seller, enough revenue, enough profitability. But add one more discipline to the process. Keep your pipeline full. Because the easiest way to walk away from a mediocre deal is knowing there are other opportunities behind it. And the easiest way to talk yourself into a bad deal is believing this is your only chance. Don't buy from scarcity. Don't fall in love with the deal. Set your criteria before the deal appears and have the discipline to follow those criteria after it does.

4:42Bruce Whipple:And if you don't know where you stand in your business acquisition journey, go to askbrucewhipple.com. There are 12 questions there. It'll take you less than 10 minutes. If you fill those out and answer them, you'll receive a score showing you where you may need to strengthen your business acquisition skills. And you'll also be able to get a copy, a complimentary copy, which is free, of my 29-page online book. Again, that's askbrucewhipple.com. So keep your pipeline full, keep your standards high, and remember, the most dangerous deal may be the only deal you have. So I wish you success, and never ask, never get.

5:28Bruce Whipple:Remember that, and keep pushing.