How to … Ensure Good Deal Flow (Part 1, What and Why)

When you intend to build a group of businesses you need to be able to look at a selection of them, evaluate each one and make a decision as to whether to buy. There are bound to be ones you aren’t really sure about, or maybe aren’t really keen on, but if that’s all there is on the table you might find it hard to walk away.

When you intend to build a group of businesses you need to be able to look at a selection of them, evaluate each one and make a decision as to whether to buy. There are bound to be ones you aren’t really sure about, or maybe aren’t really keen on, but if that’s all there is on the table you might find it hard to walk away.

The starting point for everything is finding a business owner to speak to, but at times that can feel next to impossible. Happily, there are many places where you can find businesses for sale, many avenues that can lead to a deal. The key is to cast your net wide by accessing a range of potential deal sources. In other words, you create deal flow.

We’ll be looking at some of those avenues that can lead to a deal in the next part of this three-part article. In this one we are focusing on what deal flow is and why you need it.

Deal flow

Deal flow, quite simply, is having a wide choice of good-quality businesses available to you and your pick of which to buy. Whether you think of it as a pipeline or a funnel matters a lot less than that you have that choice.

Without it, there’s a big danger you could become a motivated buyer and you don’t want that. That can happen if you look at one business and fall in love with it, and decide that you’ve got to have it, and that usually happens because you’ve only got one business to look at. Always remember, it’s the seller who should be motivated, not the buyer!

With good deal flow, you receive more enquiries from people who want to sell. Casting your net wide gives you a good-sized catch to choose from – so you keep the best of the bunch and throw the rest back. Good deal flow leads to better deals meaning every acquisition is a positive decision. You buy because this is a business I want, not because there’s nothing else in the pipeline, so I’d better buy a business, any business, while I still can. There’s a world of difference between opting for a business and settling for a business.

Why is it important to have lots of choice?

There are a number of reasons, but let’s focus on what arguably are the three main ones. These are so important that if you ignore them you’re always going to struggle.

1. The more choices you have, the better the deals you will find

The first very important point is that the more choices you have, the better the deals you will find. Let me give you a very relevant example. I was Zooming with a Mastermind group recently and one client was telling everyone about a particular business she was interested in. The more she described the business, the worse it sounded, and the more we thought, why would anyone ever be interested in this?

And do you know why she was interested in it? Because she didn’t have anything else. She was putting up with a substandard business simply because she didn’t have any other businesses to look at. And that’s not unusual – I see this a lot.

The lesson here is, if you’ve got lots of choices, you’ll be able to pick and choose from those choices and you’ll be able to find the better deals.

When I’ve got someone telling me about a business that no one in their right mind would be jumping for joy at, my follow-up question is, ‘Can you tell me about your deal flow?’

And there’s a pattern here: I know before I ask that the answer is always going to be, ‘Oh, it’s not good.’

So the simple solution is, have better deal flow, find better deals.

2. The more choices you have, the better a negotiator you will become

When you’ve got more choices, you will become a better negotiator. Why is this? Because the most powerful negotiating stance you can take is to say ‘no’ and walk away.

It’s very hard to say ‘no’ and walk away when you have just one business that you’re looking at, because you start to become a motivated buyer, whereas we’re after a motivated seller.

What we need to do is make sure we have so many choices that if we need to, we can look someone in the eye and say: ‘Look, this just isn’t going to work for me. If you change your mind, come back, but right now it’s a no,’ and leave the room. That will give you a strength and a power and a confidence you never would have had otherwise.

You become a far better negotiator when you’ve got choices.

3. The more choices you have, the faster you will reach your goal

If your financial goal is going to be reached with three acquisitions, for example, and you’ve got ten businesses that you are looking at, finding the three right ones to buy out of that ten is highly unlikely. But if you’ve got twenty businesses to look at, then you’ll find those three a lot faster because your chances have doubled. The more you look at, the faster you will reach your goals.

During the pandemic, I really stepped up our deal sourcing activity. I did more during that period than I’d done prior to it and as a result, we were flooded with opportunities. There were just so many people that we could buy from and so we reached our goal a lot faster because we could just pick the deals that we wanted.

You must keep up the activity

I know from experience that when I talk to people about deal sourcing they nod and say, ‘Yes Jonathan, I get it; why are you making such a big fuss about this?’

However, I also know that the reality is, even the people who say they get it, don’t do it.

So again, a little anecdote. I’ve got a client in our current Mastermind group who is in the specialist printing business and as you would expect he’s got a very clear goal for the revenue, the profit and how many deals he needs to get there.

And he’s slowed down. I asked him why and he said, ‘Because I forgot about the deal sourcing. I was focusing so much on getting a particular deal over the line, it took three months to do it, for three months I didn’t go looking for anything else.’

So here is the big tip: you need to run your deal sourcing activity all the time in order for you to reach your goals as fast as possible. You don’t stop it when you find a business to buy.

The people who want to buy a business, but who struggle, don’t ever get good at generating deal flow.

Top 10 Tips For Achieving Good Deal Flow

  1. Deal flow means having a wide choice of good-quality businesses available to you and your pick of which to buy. You actively choose, you don’t settle for.
  2. Avoid getting fixated on a particular business; there’s a big danger you could become a motivated buyer.
  3. With good deal flow, you receive more enquiries from people who want to sell.
  4. Never put up with a substandard business simply because you don’t have any other options – take positive action to boost deal flow.
  5. Casting your net wide gives you more to choose from; you can keep the best and throw the rest back.
  6. Have better deal flow, find better deals.
  7. When you’ve got more choices, you will become a better negotiator.
  8. The most powerful negotiating stance you can take is to say ‘no’ and walk away, but you need deal flow to be able to do that.
  9. Run your deal sourcing activity all the time – that will allow you to reach your goals as fast as possible.
  10. The people who want to buy a business, but who struggle, don’t ever get good at generating deal flow.

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