Home > Tools and Resources > Selling a Business > The Seller as an Obstacle for a Sale

The Seller as an Obstacle for a Sale

Print

Email

While there may be obvious, acceptable, or reasonable explanations as to why certain businesses sell faster than others, we discover that sometimes the seller poses the greatest threat to a closing. In this article we will outline some of the most common problems linked to the seller.

Team Molasses

Sellers usually have established relationships with an accountant, attorney, and personal advisor; a broker is perceived as an outsider with limited influence. Additionally, because broker’s services are free until closing, it may be assumed to have a limited value despite the broker’s expertise in ownership transfer.

While constructive advice and guidance are great assets, especially when someone is paid good money for it, the cumulative effect of “too many chefs in the kitchen” can slow or stop the sale process, introduce unnecessary noise to the transaction process, or even bring forth dead wrong advice. It is the broker’s responsibility to keep the deal in perspective, to be reactive to changing dynamics, and to offer creative responses to enhance the deal.

Sellers tend forget they are the final decision makers! They must realize that even when paying top dollar for advice, a chance exists that their advisors might be wrong.

Lawyers

Mark McCormack, an attorney and author of the book “The Terrible Truth About Lawyers” (Beech Tree Books, 1987), points that “… the overwhelming majority of what lawyers do takes too long and costs too much – because incentives for lawyers to be slow, contentious, and long-winded, are built right into the system…”.

In business brokerage context, we frequently see comprehensive, clear, and well drafted contracts tossed aside as an overplaying lawyer insists on a new contract full of legal mumbo jumbo and deal-killing contingencies.

Brokers can pronounce a good deal dead upon arrival when lawyers are allowed to do the deal rather than simply formulate it. When a lawyer starts making suggestions on the business aspects of a deal McCormack suggests to clients to give the following reply “WHO THE HELL ASKED YOU????”. Brokers and lawyers may often have a conflict of interest as brokers concentrate on results while lawyers concentrate on the process. This is the time for brokers to keep all parties focused on the deal, and on its timetables and deadlines.

Withholding Information

Sellers know themselves and their business best. Adopting a “you didn’t ask – so I won’t tell” approach regarding material information that might adversely affect the integrity of the business and its ability to secure financing should be disclosed to prevent mistrust and destroy goodwill. For example, we recently experienced a situation with a $20M business where the seller’s foul play from 15 years ago killed a “deal made in heaven” because the buyer was upset they were not disclosed that information by seller. The information surfaced three months into the process and although it had nothing to do with the business; however, due to the large amount at stake the buyer felt that the deal’s integrity was substantially damaged.

It is highly probable that a buyer will eventually discover undisclosed information during their due diligence which leads to suspicion, re-negotiation or withdrawal of the offer. Failure to include or mention material information, deliberately or accidentally, reflects on the broker’s reputation. Brokers should take their time to study their listings to the fullest degree to avoid this pitfall.

Misrepresentation and/or Flow Control of information

Catalyst Business Brokers operates in South Florida, and sometimes it seems that in this market we are one of the few companies that actually pays true taxes. It feels like everybody has multiple books….

Too often we encounter internally generated financial information that resembles a Christmas wish list that later is found to be vastly d

Print

Email

Growing Your Business Value Growing Your Business Value Before You Sell Adding a Simple Time-Tested Sales Process Delivers Better Buyers, a Better Price and a More Certain and Faster Closing, Every Time. Value Building and Exit Planning for Business Owners Don't Overlook the Value of a Business