Buying a business can be (and often is) an intensely frustrating process. When you have questions, when negotiations are in full swing – even getting initial information usually means you spend a lot of time waiting. Waiting for the seller’s broker to contact the seller. Waiting for the seller to get together the documentation you’ve requested. Waiting for an attorney to look over a contract. Waiting for approval by your new commercial landlord. Waiting for licensing and permitting requirements to go through. It takes an enormous amount of personal patience to see it through.
This huge patience requirement can make you feel a little crazy – maybe even crazy enough to try and push the process along by yourself.
What do we mean by that?
The process of buying and selling businesses comes with a rather rigid set of rules. The majority of those rules seek to protect the deal on two fronts. They protect the confidentiality of the transaction itself and they protect the buyer and seller from each other.
Why does a transaction need confidentiality and why shouldn’t you push to break it? Breaching confidentiality might not only kill your deal, it could potentially cause a fatal blow to the business you are hoping to buy. Business sales happen under a strict veil of confidentiality for a few very important reasons.
The most important of these reasons is the incorrect but pervasive assumption that a business for sale is a business on the brink of failure. This notion can destroy a business if the news gets out that it’s on the market. Employees can panic and leave. Clients can cancel big contracts. It can be devastating. As a buyer you have to keep the for-sale status of prospective businesses under wraps. You will not only be required to sign non-disclosure agreements – you will be forbidden from talking to staff on your own, from emailing the owner directly (in many businesses the owner’s email is accessible to their staff), from calling the place of business and asking for the owner, from visiting the premises without permission, etc.
While it might be tempting to email or call the seller because you’re tired of waiting for the brokers and attorneys involved to get you the information you’ve been asking for – don’t. One seemingly insignificant point of contact can cause a disastrous cascade. The rules exist for a reason. You have to follow them.
This leads us to the second set of rules that protect the buyer and seller from each other. Even if you are following the rules that protect confidentiality to the letter, it might be tempting to bypass the intermediaries and talk one-on-one with the seller (if you somehow have their home phone number, for example). Don’t do this either.
The better question is why do the intermediaries, the business brokers, exist? They exist because the complex tangle of a business transaction requires experience and it also requires a buffer. A seller is selling their blood, sweat and tears – something that may be their life’s work. They have a deep personal connection to their business – and a buyer can quickly and easily derail a deal by asking the wrong question, by making an innocent assumption, by saying the wrong thing. Those questions and remarks can offend a seller to the point that they will refuse to work with you – and your deal is dead.
Follow the advice of your broker and keep the flow of communication between you and the seller flowing through the people who you hired to keep your deal on track. Negotiations are far easier when the seller is still willing to talk to you.
The message here is the rules that cover your business transaction are there for a reason. Someone, somewhere messed up their chances of becoming a business owner – and their cautionary tale will keep your deal safe.
Are you a business buyer who thinks the rules are a pain and want to know more about why they are so important? Do you have a story about a derailed deal that could have been protected? Please leave any questions or comments here, and we would be happy to help.
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