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Part of Buyer search: from criteria to letter of intent

How to evaluate buyer search claims, and where your own funnel is actually stuck

How to evaluate claims made to a buyer, with a checkable test for each, plus a funnel review of your own search that shows where the process is actually stuck.

Field Desk · · 5 min read

A buyer hears claims from day one: listings, intermediaries, services selling access, and other buyers on how they did it. Months in, the buyer has claims of their own to review about whether the search is working.

This page takes both in turn: how to evaluate what you are told, and how to evaluate what you are doing.

What to take away

  • For every claim, ask what would have to be true for it to hold, and whether that can be checked without relying on the person making it.
  • The stories that reach you are the successes. The failures did not write anything.
  • Review your own search on a fixed schedule, against numbers, and change one thing at a time.

Claims you will be told

The claimWhat would make it trueHow to check it
The business is priced to sellA valuation done on a stated earnings basis, with adjustments listedAsk for the basis and the adjustments; if the answer is a multiple with nothing under it, there is no valuation
The owner works part-timeSomeone else makes the daily decisions and the record shows itAsk who signs, who prices, who hires; ask to see a week's diary
The customers are loyalLong tenures, contracts, low churn in the recordAsk for revenue by customer over several years, not a testimonial
There is a lot of interestSigned confidentiality agreements and released packagesAsk how many packages have gone out; then ask the seller the same question
It has been prepared for saleClean books, documented processes, consents identifiedAsk what was done, when, and by whom; see what preparation actually consists of
This service found me my businessOne completed purchase, verifiableAsk to speak to the buyer
The earnings support the priceA lender would advance against themAsk a lender; read how they test a deal

The right-hand column is the whole method. A claim you cannot check without relying on the claimant is not evidence; it is the claim restated.

Verify Every Buyer Claim

  • Priced to sellask basis and adjustments
  • Owner part-timeask who signs and decides
  • Customers loyalask revenue by customer
  • Interestask how many packages sent
  • Prepared for saleask what, when, by whom
  • Found my businessask to speak to buyer
  • Earnings support priceask a lender

The two distortions to watch for

Survivorship. The buyers who write about their search are the ones who completed. The ones who spent two years and stopped rarely publish, and the ones who bought badly publish least of all. The advice you read is therefore filtered through survivorship bias before it reaches you, and it tends to overstate how often searches succeed and how much of the success was method. Read it for the method anyway, and discount the confidence.

Anchoring. The asking price is the first number you see and it shapes every number after it. A business priced high and reduced feels like a bargain at a level that would have looked expensive on day one. This is the anchoring effect, and the only reliable defense is to form your own view of the earnings before you look at the price, and to write it down. Listings are built to anchor you; the guide to reading them explains how.

Reviewing an offer you are about to make

Before any offer leaves your hands, review it as if a stranger had written it.

Pre-Offer Review Checklist

  • Price tied to stated earnings basis
  • Sensitivity run on each input
  • Structure protects against top uncertainty
  • Accountant agreed earnings basis
  • Lawyer has read the letter
  • Withdrawal conditions written down
  • Is the price tied, in writing, to a stated earnings basis and a stated set of adjustments? If those change in diligence, does the price follow?
  • Have you run the sensitivity, moving each input one at a time to see which of them the price actually depends on? That is what valuation calculators are for, once the inputs are real rather than advertised.
  • Does the structure protect you against the thing you are most unsure of? An unverified customer relationship argues for deferred consideration; an owner who is the sales force argues for a long transition.
  • Has your accountant agreed the earnings basis, and has your lawyer read the letter? A purchase of this size warrants an intermediary, an accountant and a lawyer, and the offer is the moment all three should have seen the same document.
  • What would make you withdraw, and is it written down somewhere the seller cannot see?

Reviewing your own search

Set a review date when you start, and keep it. At the review, count.

Where Your Search Is Stuck

  1. Listings and approaches seen
  2. Confidentiality agreements signed
  3. Packages received
  4. Offers made
  5. Letters of intent signed
  6. Deals reaching diligence

Each pair of adjacent numbers is a conversion, and the place where the conversion collapses tells you what is wrong.

Many listings seen, few signed agreements: your criteria are too narrow, or you are in the wrong market.

Many agreements and few packages: intermediaries are not taking you seriously. Check your buyer profile and proof of funds.

Many packages and no offers: either the businesses fail inspection, which is fine, or you cannot commit, which is not.

Offers made and none accepted means you are bidding below the market's view of value. Decide whether the market is wrong or your funding is. Letters signed and deals that die in diligence means your screening before the letter is too light.

Change one thing at a time. If you widen the criteria and raise your offers in the same month, the next review cannot tell you which one worked. The search guide sets out the project this review belongs to.

Common questions

How often should I review the search?
Monthly for the numbers, quarterly for the criteria. Criteria changed monthly are not criteria.
What if the intermediary will not tell me how many packages have gone out?
Note that they would not, and ask the seller at the first meeting. Sellers often answer.
Should I trust a reduced asking price more than an original one?
Neither is evidence about value. A reduction tells you the market declined the first number. It does not tell you the second one is right.
Is it wrong to withdraw an offer after diligence?
No, if diligence found something. Withdrawing without a finding is how a buyer stops being shown packages.
Filed underbuyer search review

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