How To Kill A Business Sale

27 October 16

I have often been involved in transactions where the seller gave the impression of making it difficult for the buyer to do perfectly reasonable investigations. In one recent matter, the buyer wanted 14 days to make a few reasonable checks on the business. The seller agreed, but would only allow a 7 day period for it all to happen. The buyer felt he needed at least another week, given the nature of the enquiries and the distinct possibility that his enquiries would not be answered within the 7 day period. The seller wouldn’t budge. He said his lawyer told him a week was long enough. The buyer wasn’t prepared to start spending money on a due diligence process if there was a chance it wouldn’t be completed within the seller’s timeframe. Apart from his initial concerns, the buyer then worried about what this behavior was saying about the business. Was the seller trying to hide something? He purchased elsewhere.

A signature on a contract is just one of several steps in getting a business sold. Sellers shouldn’t be afraid to use the actual contract itself as a selling tool. Once a buyer is qualified as a prospect, a sensible contract can coax a buyer into the deal with reasonable timeframes, a flexible attitude and use of the magic words “subject to”. If the buyer thinks he would like to buy, but would like to see if he can confirm availability of intellectual property, arrange key employment contracts, check zoning, confirm continuity of terms with crucial suppliers, check out customer distribution agreement – fine – and give him time to do it, especially if there’s no one else about ready to buy. In fact, if the buyer is going to start spending money on engaging professionals on the deal, then all the better because a seller knows he’s dealing with a real prospect.

Sure, time-wasting tyre kickers are always a nuisance but, right now, sales are happening and genuine buyers are about. So how is a business sale ruined? In a nutshell: restrict the enquiries which a buyer can make about the business, tighten up the times to do it and be inflexible. That’ll work for any seller – he’ll keep the business!

Conclusion

Unfortunately, too many sellers have unrealistic expectations of how a sale should progress. Every step in a management rights sale needs to be systemically worked through. It is a process and there are no short cuts. Sellers who constantly “push back” only make their buyer wonder what they have to hide.

Someone looking to buy your business is the biggest buyer of all and you need to quickly click into “sale mode” and do whatever is necessary to massage through each stage of the process.


Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.
 

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