FREE TRAINING: 3 Keys to Sell Your Business with Confidence

Skating on Thin Ice

Bart (not his real name) wants to sell his distribution company in Nashville. As is usually the case with every engagement, the opportunity is a mix of good news and bad news.

Bart has a solid business that will be of interest to several companies expanding in his sector.  Bart has agreed to a reasonable valuation, and he is patient knowing the process will take nine to 12 months. He has an experienced key management team, and most of his 75 employees have been with the company for more than five years.  Suffice it to say, there is a lot of good news as we prepare to take Bart’s company to market.

But then, there is the bad news. Bart told me he had a good offer to sell his company in 2015, but selling was not on his radar. His son had just joined the company, and Bart wanted to train him to take over the business. Bart spared me the details, but it seems his son has little interest in running the company.

I assured Bart that that was not unusual, I see it all the time. But Bart dropped something on me that I don’t frequently see.

Bart wants to make sure his son’s job is protected after the business is sold. In fact, Bart wants the buyer to agree to increase the son’s compensation by 25%.  I asked Bart the obvious question, “If you think your son deserves more compensation, why don’t you go ahead and increase it now?”  Bart then gave me a puzzling response, “My son will be taking on more responsibility when I am out of the picture, so he deserves more.

Why this response was puzzling will be obvious in a moment.

To be sure, it is not uncommon for the seller of a business to want key employees to be protected after a closing. This might include negotiating for those key employees to get better comp, benefits, stock options, etc. But the tricky part of what Bart wants is this: his son is not considered a key employee. Though Bart had hoped his son would grow in capability to one day assume control of the business, he has never shown an inclination to go beyond being the warehouse manager. His son likes working eight hours a day then heading out the door. Of course, there is nothing wrong with that work/life balance and he is a good employee, but for Bart to be demanding better comp and benefits for his son puts him and his son in a precarious position.

I explained to Bart that including better terms for key employees is possibly doable, but he can’t expect to dictate post-sale specific terms for a specific individual in the middle of the organization chart, especially when that individual is a family member. In fact, I am concerned Bart might be setting his son up for failure in the eyes of the buyer; nobody wants an employee who has to be propped up.

Yes, I know the old saying, “You only sell your business once, so you might as well ask for what you want, the buyer can always say no.” But recognize that if your ask is perceived as over the top, it might derail the deal. Seldom does a buyer want to be told how to operate the business after closing. Bart is skating on thin ice, and that is never a good idea.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.

The following two tabs change content below.

Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

Latest posts by Tennessee Valley Group (see all)