By Jason Alan – One thing’s for certain when buying or selling a business, it can be a emotional roller coaster for all parties involved (buyer, seller, and broker). It is important that as brokers we identify these emotions and strategically handle them. I’ve learned to identify a series of patterns from my buyers and sellers with respect to their emotions and behavioral patterns and how to handle them. First and foremost not taking any of them personally or getting my own emotion involved. While this can be a challenging exercise, it’s imperative.
Once the purchase agreement has been signed and due diligence has begun, buyers and sellers experience a wide variety of emotions. There are several factors that influence the decision making process beyond the hard facts at hand such as: Pride, Denial, Ego, 3rd party advocate (who usually doesn’t have all of the facts), lack of confidence, and the list goes on. When any combination of these emotions come into the equation it’s important to identify them and understand that not everyone may be making decisions rationally. This is where the real work begins and below is a list of tips that will help buyers, sellers, and even brokers.
Tips for buyers –
- If you are going to buy a business and have a friend or relative giving advice make sure they are involved in all phone calls, meetings…etc so that their advice is coming from a truly informed place, otherwise this could potentially add further complications to a already complicated deal.
- Sometimes it’s best to give yourself some time to make a decision and not have a emotional response when financials may not make sense as there usually is a logical explanation.
- Recommended due diligence time is around 14-21 days depending on the business.
- Always a good to update your résumé or bio so that it is ready for review by landlords when negotiating a new lease or lease assignment. This will make things much smoother.
- The way you open escrow is the way it must be closed – If you’re going to purchase a business in a corporation or LLC it’s always best to get this before escrow is opened or you can always switch the purchase later into the corporation or LLC. Name changes during the escrow process will result in additional fees incurred by one side or even both as the process will have to start over as the publishing process for the bulk sales transfer will have to start again.
- Never respond to emails or phone calls out of emotion. If you’re upset or feeling anxious go for a walk, call a friend, let some time pass. (same applies for all parties involved) wait at least an hour before responding to any obstacles in due diligence. If you’re having a moment send the email to yourself and read it in an hour or so and see how it reads before sending to other party.
- If you need tax advice or legal advice it should always come from a licensed professional.
- Be patient during the due diligence process as most sellers do not have all of their books and records ready for review and it may take some time to get a complete package
- Lease negotiatio
ns typically take place concurrently with escrow.
- It’s critical to the momentum of a transaction to get all needed documentation executed and returned to either the broker or escrow officer on time and without delay.
Tip for Sellers
- Prepare your financial documents – Have digital and print copies of your books,records, and lease ready before due diligence begins. This will allow for a much smoother due diligence period as this can sometimes be one of the more stressful parts of the transaction.
- Buyers are going to ask lots detailed questions that may even be uncomfortable at times but should not be taken as if you are being attacked.
- If you don’t have all your due diligence items ready it’s always best when asked a question to be honest and say you don’t have that information but you will get them the answer. Don’t make up the answer because most buyers are very savvy and will call you on it later at some point.
- Employees and keeping the sale of your business confidential – If having your employees know about the sale of your business is an issue it’s usually a good idea to have the buyer complete their financial due diligence first before moving on sight due diligence.
- When telling your employees about the sale of your business it’s important for them to know that it’s not necessarily a bad thing. Most employees instantly think that when a the business is being sold and new management is coming in that it’s instantly bad. An introduction to the new owner often times squashes any employee concerns or anxiety.
- Check your lease in advance and make sure that it’s assignable and that the options are also going to transfer with the lease assignment. Please make your broker aware of the amount of security deposit and any other issues that you might know of that could be a problem during the lease negotiation. One of the most common reason why deals fail is due to landlords / lease. If there isn’t a assignment clause in your lease some landlords may still grant a assignment or sublease.
- Be prepared to be a guarantor on the lease for the remaining term of the lease as most landlords will require this. It’s also worth trying to see if after a certain amount of time that you can fall off as a guarantor of the lease.
- Never yell, get upset, or blame your broker – The last person you want to upset is your broker as they are working for free until the close of escrow and doing everything in their power to make sure a transaction happens. If you stress and tensions levels through the transaction and especially in the last week or two of a deal can be taxing for most that are not a custom to this process…don’t take it out on your broker. Go to the gym, take a walk, or read a book before if you’re getting emotional or anything to take your mind off the deal when feeling any discomfort.
- Be prepared that buyers may suddenly disappear during a transaction because of other non-related issues like family or emergency situations. I’ve seen this happen time after time and it’s important not to panic if your buyer goes missing for a day or two without any communication or returned calls / emails.
- When responding to emails try and keep it limited to one issue at a time and around 6-8 sentences. If you have multiple issues don’t write a novel as most people won’t read it or retain all of your important points. It’s best to just address each issue with a bullet point or number.