First-Time Buyer Series: Rookie Mistakes That Can Cost You Big, # 2

In last week’s article, Rookie Mistakes, #1, we discussed one example of how negotiating before you have all the facts can cost the advisor a lot of money, if not the entire acquisition. Continuing in that vein, we will highlight another situation we have encountered that can cost the First-Time Buyer a great deal of money.

An excellent advisor we know, once suggested that he might pay 70% down at an early meeting, prior to the completion of the due diligence. After he completed his due diligence, he decided that he might pay 100% down, but he of course wanted a discount for paying it all up front. After all, he had all the risk in the transition. The typical discount for a book when paying it all at Closing can be 25%-35%. What do you think the seller said? You guessed it, “Why should I discount it 30% when you have already offered me 70% upfront?” On a $1.5 million practice price, it cost the buyer as much as $450,000. And you thought $5 for a coffee was expensive.

We are not suggesting avoiding the informal first meeting. By all means, use these meetings to get to know the seller, and to investigate or develop common ground. However, do not take any meeting with a potential seller lightly. Just because it is coffee, drinks, or golf, does not mean you do not prepare. Preparation means knowing what you want to find out, but also what you want to say, or not say. In these early meetings, you are investigating, but you are also auditioning as an attractive buyer. The seller is deciding if she wants her clients exposed to you. If you start outlining ideas off the cuff, she might wonder if you would do that with her clients. That is bad enough. Worse still is the fact that she is likely to remember those things that you say that seem the most beneficial financially. It is hard to get the water back in the garden hose.

In your early discussions, stay away from financial arrangements. For one thing, it sends the message that numbers are all you care about. A “get to know you” meeting is simply to see if you can explore working together. This is the meeting where you decide, and the seller decides, if a sharing of data even makes sense. Why is she selling? What will she do after she sells? (Here is a tip; if she cannot articulate what her post-sale plans are, you might want to be a little suspicious that she will never actually complete the sale. “Travel” is not a very good answer. “I am learning Italian, as I am planning an extended trip to Lake Como in Italy next August,” is a much better answer. It is more definitive.)

Plato said, “Wise men speak because they have something to say; fools because they have to say something.” Do not let your desire to say something cost you the negotiation before it begins.

Stay tuned for next weeks article, and once again, if you have any questions, remarks, or would like to see how we can help, feel free to message me here or on Moisson Partner's facebook page.