Little Things That Can Threaten a Business Deal

Important notes for those looking to sell a business

by Stephen Weaver

Recently, I ran into a situation in which a business deal started to teeter on the brink of falling apart. This wasn’t because the buyer and seller didn’t get along (meetings always went well) or because there was a haggle about price (it was a full-price offer) or even because lawyers were overstepping boundaries. Deal points were being pushed back in a way that started to create suspicion, and the seller’s response was, “Well, the buyers need to just trust us.” I let them know that that wasn’t going to cut it.

Consultation Time

In the original deal, the buyer wanted 12 months of access to the seller by phone or email to ask questions. Sometimes, things come up later that aren’t covered in the transition, and a buyer wants access to institutional knowledge and reflection. The seller revised this down to six months. This was not a problem, as six months is still a lot of time, but as you’ll come to see, when added to other items, it started to contribute to a narrative of suspicion.

Note: Very often, despite having negotiated transition time, buyers rarely use all agreed-upon consultations with the seller post-sale. By offering a generous consultation window, in some cases paid, sellers can give added confidence to buyers.

Training

The original deal had specified four weeks of training. The seller pushed back, saying he only wanted to do “20 hours a week, because that’s all I work anyway.” This was a fundamental mistake of the seller. It was a mistake in attitude, treating a transition to a new owner as “just another week, which shouldn’t take any more time than any other week, and I better not be bothered.” It’s also a mistake in reality: Just because the seller was only working 20 hours a week at the time of the sale doesn’t mean the buyer will be able to do that at the beginning of his business journey, and he will be putting in many more hours to learn the business.

Note: Be ready to give the new owner all the support they need. This is a big change for you as the seller but realize how much bigger of a change it is for the buyer who has to learn what you know like the back of your hand.

Noncompete

The original deal offered a five-year/50-mile noncompete clause. The seller was trying to push back to two years/25 miles. This, more than anything else, was a problem for the buyer, and it would have led to problems with the bank if we hadn’t quashed it. If you’re looking at a 10-year note on a Small Business Administration loan but the seller is implying he would like to be free to compete with you within two years’ time, banks (and buyers) aren’t going to be thrilled!

What was even more strange was that the reason for the sale was given as “retirement” by the seller, so why was he asking for the noncompete to be drawn down?

Note: If you want the freedom to compete again and start a business in the same category, be advised that this has every chance to sink a deal.

Ultimately, we got the deal across the line largely due to direct and honest communication with everyone involved. We spelled out understandable fears, and we pushed back when modifications were unreasonable.

If you’re considering selling your business, you should be thinking about some of these issues.

Stephen Weaver, CBI, is the Gulf Coast Southeast Region director for Apex Business Advisors. With more than 25 years of experience as a business broker, he specializes in navigating complex and high-stakes transactions, delivering results for business owners facing challenging circumstances. He is also a proud Rotary Club leader. He can be reached at [email protected]. Learn more about Apex at kcapex.com.