Buying and Selling a Business. Garrett Sutton

loud and derisive manner, encouraging other employees to quit as well, many of whom did. The banker called several of Walter’s promissory notes, forcing Walter to scramble to find alternative financing, and killing all of Walter’s hopes for completing the other business opportunity he had sought to pursue.

      The disruption caused Walter to almost lose the business. When the employees left they took some of their regular referral sources with them. Some of his best employees started working at two new, very competitive closet design firms – that Anian had opened up in the area.

      Walter hung on by assuring the remaining employees that they would always have a place to work, that he was not selling the business, and that their job security was as important to him as it was to them. It took almost a year, but Walter brought the business back. And he had learned a very valuable lesson about the confidentiality needed when selling a business, and the care needed in selecting the right potential buyers.

      As we have just seen, company sales affect more than just buyers and sellers. Customers, vendors and employees can all find out about the possibility of a sale, and emotional reactions are inevitable. Fear of what is to come may have some already looking for new suppliers, customers and jobs. The fallout can be far-reaching without the owner ever even knowing about it. Therefore, sellers need to be proactive from the beginning. Confidentiality agreements are a must to keep the news of a sale on a need-to-know basis. The agreement should be in writing with, if possible, a damage provision for the unauthorized release of confidential information. However, this type of contractual provision will only take the seller so far. Once the others find out, or are likely about to find out (and be assured, they WILL learn of a potential sale), the seller needs to start talking and alleviating fears. And you’d better have your story consistent and down pat, because your employees are going to want to hear something that is reasonable, reassuring and makes sense.

      How to Handle a Failed Sale

      If the sale does not go through and the company is taken off the market, the owner will need to talk to those involved and reassure them all that he or she is committed to the business and looking forward to future success. Any sense of failure projected by an owner will lead others into the cycle of uncertainty. As we all know from experience, uncertainty leads to fear. Fear leads to grasping for safety. And that search for safety can mean customers, vendors and employees finding new opportunities elsewhere and leaving the owner behind.

      To allay customer fears after deciding not to sell, owners should redouble customer service efforts. It is unlikely that most customers will even know there was the potential of a sale, but the owner has no way of knowing who might or might not have heard the news. Customer service never hurts a business and making service a priority not only convinces those who did hear that you are recommitted to the business but may increase loyalty of those who never even knew anything was in the offing. For those who ask what happened, be frank but don’t give away details. Customers need reassurance, not a lesson in capitalism. As Henry Ford said, “Never complain, never explain.”

      The fallout with vendors could have financial consequences. Most vendors have relationships with owners based on long-term rewards. They may offer good credit deals in hopes of keeping an owner’s business for a long time. The news of a company being up for sale makes those long-term hopes less likely. Don’t expect the news of the sale not going through to be a relief. It is likely that vendors will now see the company as a short-term investment (they will be wondering if the owner is still trying to sell, questioning his or her commitment). This is especially true with smaller, privately held businesses where relationships are more intimate. Owners may find vendors have hurt feelings about being kept in the dark. While from your perspective it is none of their business, from their viewpoint it is their business. Your business is their business. Appreciating their position will help in understanding the dynamics involved.

      Employees likely will be relieved the company is no longer for sale, but they may have some of the same feelings as vendors and customers. They may still question owner loyalty. Once that happens, their own levels of loyalty are likely to decrease as they turn more toward protecting themselves. Morale is likely down. Owners might consider having a company party or perhaps a team-building retreat to reinvigorate the company.

      No matter what work the owner puts in, the damage may be done. In the end, there is still the danger that not selling will cost the owner more than dropping the price would have.

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      Rich Dad’s Tips

       • Know your strengths and weaknesses before buying a business.

       • Be prepared to accept complete personal responsibility for the success or failure of your business.

       • As a seller of a business know and understand the consequences of a failed business sale.

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      Let’s now review the strategies of buyers and sellers ...

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Chapter Two

       Buyers and Sellers

      Buyer Strategy/Seller Strategy

      Just as with so many other things in life, it takes two to buy a business. A buyer and a seller are the key ingredients. Brokers, accountants, lawyers and other experts make sure everything is in the right measure and you don’t get burned. But without a willing buyer and a motivated seller there is no deal. And they may have more in common than they think.

      Both the buyer and the seller want the company sold. Both want as painless a process as possible. Both want it over quickly. Neither wants to get very far into the deal and have it fall apart. Neither wants the word to get out that the deal is in process. And neither wants the business to fail.

      With so much in common, how could anything go wrong? Simple, buyers and sellers speak different languages. Each is reading for different clues, deciphering vastly different nuances, viewing the whole process through a different set of lenses. And this is exactly as it should be. Friendly skepticism is the ideal in all adversarial transactions. Former American President, Ronald Reagan, used to chide the then-Soviet Premier, Mikhail Gorbachev, with the phrase “Trust, but Verify.” The United States was willing to accept what the Russians said was true only after the United States had verified it to be true. As with nuclear warheads, the same is true for deal points. While negotiations may be pleasant exchanges and the buyer and seller may become best buddies after all is said and done, neither should lose that sense of skepticism and the need to verify key points.

      It goes without saying that the wants and needs of buyers and sellers are often at odds with one another. Knowing these wants and needs, being able to put yourself in the other party’s shoes, will help in reaching a deal that is acceptable to both sides. Or it may just as easily assist in a deal not coming together. It should be noted that not every deal is finalized, nor should they be concluded. Some deals you will walk away from, a few you will run from. By following the key elements we discuss in this book, by using your intuition and judgment, you will know which deals to complete and which to discard as unrealistic, overpriced or downright scary.

      As a general overview, the buyer is watching the road ahead. All discussions are filtered through a view of future goals. In contrast, the seller is watching the rearview mirror. All discussions are filtered through historical contexts. While both may be in the same room, they often hear different conversations due to their respective filters. Knowing this and trying to see through the other’s filter can make the whole process a little more clear.

      Know your audience. Both buyer and seller are auditioning. Both are posturing. The buyer wants to convince the seller that he or she has the financial and moral wherewithal to live up to contractual obligations. The seller wants to convince