Red flags to look out for early on with sellers

searcher profile

May 16, 2024

by a searcher from University of Sydney in Sydney NSW, Australia

What are some common behavioral red flags that can speed up a searcher's decision to walk away from a potential seller who isn't emotionally ready to sell?

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commentor profile
Reply by a searcher
from University of Pennsylvania in Miami, FL, USA
In my experience the early red flags have been plentiful; unwillingness to be forthcoming about information that will inevitably be revealed in DD, demanding incredibly short diligence periods, refusing to entertain seller financing or WC in the deal structure, behaving distrustfully of you as a buyer, hiding important relationships the seller has with clients, accepting very large cash payments (read tax fraud) and expecting the unreported earnings to be part of the valuation, presenting their role as owner as extremely easy. The best piece of advice I have about this, don't over think it and trust your instincts. If something seems off, it probably is. There are lots of deals out there and all of them have some hair on them, but go find one that "feels right" :)
commentor profile
Reply by an intermediary
from New York University in Menlo Park, CA, USA
In my experience, sellers need a compelling reason to sell. The financial windfall dreamed about almost never exists, and for all but the smallest companies, hiring a full-time manager so the existing owner can spend less time working on the business is almost always financially advantageous vs selling the company. The ideal situation is a seller of retirement age not having children interested in the business. When evaluating a potential seller, it's crucial to recognize behavioral red flags that indicate they may not be emotionally ready to sell. Here are some common signs: Indecisiveness: The seller frequently changes their mind about key aspects of the sale, such as price, timing, or terms.
Unrealistic Expectations: The seller has an inflated sense of their business’s value and is unwilling to consider market realities.
Emotional Attachment: The seller demonstrates a strong emotional connection to the business, making it difficult for them to detach and view the transaction objectively.
Reluctance to Share Information: The seller is hesitant or refuses to provide necessary financial and operational details, indicating a lack of transparency.
Inconsistent Communication: The seller is slow to respond, cancels meetings frequently, or is otherwise unreliable in their communications.
Overly Defensive: The seller becomes defensive or evasive when asked standard due diligence questions, which may indicate underlying issues.
Pressure to Close Quickly: The seller seems overly eager to close the deal quickly without valid reasons, which might suggest they are hiding something or are not fully prepared for the process.
Recognizing these red flags early can save you time and resources, allowing you to focus on opportunities with sellers who are genuinely ready to sell.
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