Seller and Buyer Relationships on the Sales of a Business

Seller and Buyer Relationships on the Sales of a Business

NorthBridge Business Advisors

Sometimes people look at a business transaction as a competition where there is a winner and a loser. Let’s compare the type of competition that a buyer and seller of a home may experience to what a business owner and buyer of the business may experience.

Although I have a real estate license, you don’t have to be a licensed realtor to have heard of or experienced situations where in a home sale, a seller and buyer either directly or through their realtors negotiate on virtually every aspect of the sale. Some of those negotiations were to achieve a price concession or other accommodation and in one sense it is a zero-sum game where one party “wins” and the other “loses”. Although not every house sale is contentious, they can be and despite that, the sale may still go through. Why are people willing to act in a combative manner? One reason may be their nature and the other, like it or not, is because on a house sale, the seller and buyer will likely never meet or if they have met, they likely won’t see one another after the sale. There is no need to preserve an ongoing relationship even for a short period of time and that can impact the interactions.

Compare and contrast that to the sale of a business. Firstly, the buyer of a business makes an offer, like making an offer on a house. If the offer is accepted, the buyer conducts some level of due diligence on the business like the home inspection. While in a home inspection the buyer may tally up all the small items and request that the seller have those things corrected, the buyer of a business, in my view, is more cautious about presenting smaller items identified in due diligence for a price adjustment. That is not to say that the buyer will not negotiate large items, but the smaller items are typically not part of a contentious negotiation. Why is that possibly the case? On the bigger picture, the buyer realizes that the seller is needed to transition the business and the buyer is focused on preserving a relationship with the seller and is asking the critical question “can I work with this seller even for a short period of time to transition the business?”

This is a significant difference between the sale of a house and a business and is part of the critical assessment the buyer is making of the business. The buyer evaluates the business from the standpoint of its product, financials, employees, customers, etc., but also whether the seller will be helpful in transitioning the business. The buyer asks not so much whether the seller likes him, but will the seller provide full throated support and endorsement to customers, vendors, and employees. The buyer and the seller are dating even if their marriage together in transitioning the business is short term.

I had a recent experience with a business owner who started contacting me over two years ago about selling his business. Let’s say that over the two years, for whatever reason, we were not connecting. He would not respond to follow up and the few phone calls we had never ended in “goodbye”. They ended when he finished his last sentence and he would just hang up. There is slightly more to the story, but we never had an agreement to list the business, nor did we share any meaningful information.

After our last call recently, I had to reflect on the interactions over the last two years and unfortunately concluded that he may not be able to get along with a buyer and if so, it would be very hard to sell his business. Selling a business has its challenges. Representing a seller who may not mesh well with buyers does not help the odds. I requested that he not send me any specific information about the company and that it was best that I no longer have discussions about selling his business.

The sale of the business must include the collaborative effort of the seller and the buyer working together to transition the business. More importantly the transition helps preserve the value of the business and its existence for its stakeholders, the employees, customers, and vendors. Both parties must approach the sale with that mindset instead of the transaction being a zero-sum game.

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