How to Ruin a Business Sale

11 March 13

I read a great article recently which was written by Barry Morwood at Robinson & Robinson, Solicitors. With Barry’s permission, I have reproduced the article below.

Barry wrote:
There’s a kind of business seller who behaves very strangely when a potential buyer comes along.

This seller either forgets, ignores or simply doesn’t appreciate that someone looking to buy the business is the biggest customer of them all. Instead of switching into customer sale mode, his behavior is much like the anxious grab of a floundering swimmer being approached by a rescuer – often with the same scaring effect. The buyer is met with demands for unreasonably quick deadlines for such matters as finance approvals and restricted to very short and severely limited due diligence enquiries about the business.

This seller just doesn’t get that any normal buyer as a rule is cautious, wants to make reasonable enquiries about the business and is looking for indications about its future operations. What’s more, this seller doesn’t understand that often even the most keen buyer also has to do some persuading to lenders, even when told in the most simple language.

I’ve often been involved in transactions where the seller gives the impression of making it difficult for the buyer to do perfectly reasonable investigations. In one recent case the buyer wanted to make a few reasonable checks: equipment valuations for the lender, financial due diligence, lease extension queries, confirmation of trading terms from major suppliers and the like. The seller agreed but only allowed a week or so for it all. The buyer felt she needed at least a few weeks given the uncertain availability of her usual accountant at the time and the possibility that her enquiries might not be promptly answered. 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. There was no other potential buyer. Apart from her initial concerns, the buyer then worried about what this behavior was saying about the business which had been operated by such a seller. She purchased elsewhere.

Frankly, 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 times, a flexible attitude and use of the magic words “subject to”. If the buyer thinks she would like to buy but would like to see if she can extend or amend the terms of the premises lease, would like to confirm availability of trademarks or some aspect of intellectual property, arrange key employment contracts, check zoning, inspect plant and equipment, confirm continuity of terms with crucial suppliers, check out customer distribution agreement – fine and give her 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 as 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.


Barry’s experience is my experience. Unfortunately, too many vendors 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. Vendors who constantly “push back” only make their buyer wonder what they have to hide.

As Barry said in his article, 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.


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