“I told them I could start on August 1, which means I need to move by July 15. So, we’ll have the company sold by then, right?”
I was shocked when Allison (not her real name) told me her plan. Several months earlier, she retained me to sell the company she and her late husband started in 1994. Having successfully led the company for 14 years, she was now the definition of a motivated seller. I knew she was ready to move to Texas to live near her two sons and their families. But when she retained me, she didn’t mention she had interviewed for a faculty role at a Christian college near where she planned to live. Now I find out she not only interviewed, she was offered then accepted the faculty position!
The pressure was on, I had five months to get a deal closed. Fortunately, we had been in active discussion with several potential buyers. But I had to warn Allison we weren’t at the point where I could assure her we’d have the deal done on her schedule.
Buyers always want to know the seller’s motivation. Buyers have a subtle fear a business owner is selling for some reason related to the business’ future. We can usually get that concern laid to rest by being clear about a seller’s motivation, but in this case, I had to make a tricky decision. While telling buyers Allison is selling so she can retire in Texas, do I also tell them about Allison’s deadline? On one hand, no matter how you try to skirt around the seller’s motivation, given a buyer’s normal skepticism, enough questions get asked that the real motivation always seems to come out eventually. That’s why I advise my clients to be transparent about their reasoning. On the other hand, by telling buyers we have a drop-dead date to get a deal done, they might feel they have bargaining power in the negotiation of deal terms.
I decided to use her real motivation, an actual date she has to leave, as the basis to create a controlled auction process. I couldn’t guarantee Allison this process was going to elicit the best bids. After all, the best way to sell your company is when you don’t have to, and the best negotiating tactic is the ability to say “no.” But an owner can only do that when they have time on their side, and Allison obviously wasn’t in that situation.
We had four parties who had expressed interest in Allison’s company. But, I wasn’t sure how serious they were, much less if they intended to submit an offer. So, I met with each party and told them our deadline in such a way to communicate the possibility of a “good deal.” I also told each party there were other interested parties, and I gave everyone a specific date to submit an offer that could get closed before she had to leave.
My goal was to get Allison the best deal on the best terms given her schedule. And in all likelihood, we could have done a better deal if we had had another four or five months to get the deal done. But, when an owner is ready, they are usually ready. But in Allison’s case, she was really, really ready! That’s why our process to sell her company was thoughtful but focused. All I can tell you about the ending the day she drove to Texas her bank account was sizably larger.
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. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . 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 story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.
Tennessee Valley Group
Latest posts by Tennessee Valley Group (see all)
- That’s How We Do It In Our Industry - April 15, 2024
