How to Combat Dirty Tricks When Selling Your Business
This is the concluding post where I’ve urged caution when selling your business. If you’ll recall, buyers often play dirty tricks to wear down a business owner during the due diligence phase of the transaction. Promise of a quick transaction with a high price are followed by power plays, and psychological warfare which are all designed to wear out a business owner so they “give in to all kinds of last minute demands and concessions affecting the final price of the business.” Those are the words of Verne Harnish from an article Selling the Business: Games Buyers Play. To combat these tactics, Harish makes the following suggestions:
So what do you do to avoid this scenario—and still unload your business? First, enlist a good business broker (This is no time for amateur hour) to set up an auction for you. Don’t let a single potential buyer call the shots. One friend identified 23 strategic buyers, of which 7 came to the table to bid for the business.
If a serious prospect wants an exclusivity agreement, limit it to 30 days and require a big deposit—say $250,000—that will be forfeited if the deal isn’t completed in that window. And have “the box” of materials prepared in advance so you are bulletproof during due diligence.
Last, as best you can, insulate yourself from the transaction. Have your CFO or another trusted executive work with your broker as a go-between with the buyer, so you don’t get distracted from leading your team. Push back against last-minute demands for meetings. You want to be calm and thinking clearly every time you negotiate—and not fresh out of a fight with your spouse about cancelling the family vacation.
Overall, keep your head in the game and keep running the business as if the deal isn’t going to happen up until the moment you cash the final check!!
If you are interested in what “the box” materials are that you need to have prepared when selling your business, ask your Chief Financial Officer (CFO). An experienced CFO who has been through this rodeo on one or more occasions can help guide you to a successful exit of your business.