As a business buyer I’ve dealt with many vendors over the years. It can be easy, when you’re caught up in the complexities of a deal, to lose a sense of perspective or perhaps to forget something much more basic than that; the human element. Regardless of who’s sat around the table we’re all human beings with needs and emotions. I’ve talked before about how much of a deal is about emotion, in fact I think it’s as high as 80%. So, all the figures and spreadsheets you’ve pored over, all the reports and valuations, become almost irrelevant if deep down your vendor doesn’t truly want to sell their business.
Why might that be?
There are lots of reasons why your seller might not be completely committed to the sale, but I’d guarantee most, if not all, of those reasons are based on an emotional attachment. Maybe they don’t want to part with a family business that has seen generations working alongside each other or perhaps a partner has passed away and they still feel a connection to that person through the business. It could just be that they feel possessive about a company that they’ve worked hard to establish or keep going. Quite often though a vendor can feel that selling their business is selling out, like they’re admitting failure or weakness.
Without doubt some vendors may feel this way and it’s your job as the buyer to get to the nub of why they’re selling before you proceed, otherwise the deal will invariably fall down at some point. This is especially important in leveraged buyouts, where the seller might have reservations about the process and could be looking for a reason (or excuse) to pull out.
Instead of seeing the deal as selling out there are plenty of positive reasons to sell:
• If the vendor intends to stay on once the business is sold then gaining market share or funding an expansion might be their motivation.
• Family run businesses often stagnate and suffer from poor management. The acquiring company should ideally have plans to restructure and improve the management and improve existing systems such as accounts, IT or operations.
• Selling the business ensures its continuation. If the existing owner hasn’t lined up and groomed a successor the business may be in danger once the owner exits.
• The sale may allow the business to diversify, either in product/service or in its customer base. Again, this ensures the business continues and thrives.
So, selling a business should be regarded as a smart move and not an admission of failure.
There will definitely be an emotional element to the deal, which needs to be identified and addressed. Or you walk away. Seriously; if you find yourself struggling with a vendor, who constantly puts up emotionally motivated barriers, it’s best to walk away and focus on the next deal. When I’m buying a business I want the vendor to feel as happy about the whole process as I do, not reluctantly parting with a much-loved brainchild. That’s why I always tackle this issue head on, right from the start. It’s one of the most simple but important questions; why are you selling your company?
I run regular workshops where you can come and learn more understanding and dealing with vendors, along with other crucial elements of my business buying process.
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