Things That Can and Will Go Wrong Before Closing
We had about two weeks before the sale of Ben’s stores was to close. He had been one of my biggest worrywarts because he could never get his head around the fact the deal was really going to happen. He would call me at least three times a week, asking me the same question: “Do you really think the buyer is going to be able to get the money, and the sale of the stores is really going to happen?” I totally understand what it feels like to work for many years building a business from nothing to something successful that has fed your family, paid for everything you have, and now is going to be sold, giving you the money you need to retire. The pressure and anxiety a business owner experiences when selling their business are tremendous, and if you have not been through it, trying to explain it is very difficult.
Therefore, I do not take the situation lightly. But my job when selling one’s business is to stay focused, make sure the buyer has the ability to get the transaction closed, and keep the buyer on track doing the things that need to be done to get the transaction closed. To begin the process of selling one’s business, the first thing that needs to happen is the business owner must make the hardest decision of all, and that is to decide to sell their business. Next is to find someone, or a company like American Business Brokers & Advisors, to assist them in determining what the business is worth in the present-day marketplace. Then help them to prepare the business for sale, which means collecting a bunch of information about the business so the buyer will know what they are buying; bring all of the financial information up to date; begin the search for the right buyer; begin the process of vetting
the buyers; and analyze offers of purchase. Then, if all goes well, you accept an offer to purchase, negotiate the purchase agreement, enter into the due diligence process (which can be grueling), decide on a date when the transaction will close, and finally close the transaction. Besides having to do all the items I just mentioned, you have to maintain complete confidentiality without your employees knowing you are selling the business so as not to disrupt the operation of the business! To say a seller may be wound a little tight after going through the process I just mentioned is understandable. It’s why Ben was calling me three times a week, wanting confirmation the transaction is really going to happen.
Having guided hundreds of sellers through this process before, it never gets any easier because it is their first time, and it is a very draining experience both mentally and physically, which is why I have to stay focused and keep things moving. Now back to Ben, whose stores are scheduled to close in two weeks. He has been through everything I have described and is feeling pretty good now and calls me and says, “We got everything done for the buyer, so we are done now, aren’t we?” Being the pragmatic individual I am, having spent the last six months practically living with Ben, I respond by saying, “No, I am sure something else will come up within the next two weeks that will try to jeopardize the closing, but we will figure it out and get the transaction closed.” At that point, Ben is about to freak out and says, “What could go wrong in the next two weeks?”
Here is a short list of items that can and have happened to me before I got the transaction closed.
- The seller’s wife had an affair and ran off with a bread vendor just before closing. In this situation, we had to negotiate a buyout of the wife in order to get the transaction closed.
- The seller’s general manager, who was coordinating the inventory and closing procedure, had an anxiety attack and ended up in the hospital.
- The seller was experiencing heart pains due to the pressure of going through the sale process, and the closing was delayed.
- The seller died two days before the closing, and his spouse had to step in and finish the closing. The seller’s attorney and buyer’s attorney couldn’t get along, got into a fight, and quit communicating, and I had to become the mediator between the two to start talking again to finish the transaction.
- The seller’s siblings were not involved in the business due to domestic issues but had the authority to sign closing documents and refused to sign, delaying the closing.
- The seller and family members refused to communicate, and I had to negotiate between parties to get the keys and other documents needed to close on time.
- The title company could not get the closing statement correct and it took 13 different closing statements before the seller got their money, but the buyer is now operating the business and the seller hasn’t been paid.
- One of the seller’s stores was leased, and the landlord refused to sign documents. The transaction closed, but the seller was short $1 million at closing while negotiating with the landlord.
- The title company discovered an easement that runs through the middle of one of the stores, and we had to call a special city council meeting to get the easement vacated before we could close in one week.
- An asteroid hit one of the properties being sold and delayed the closing. (I threw this one in even though it hasn’t happened yet, but I am waiting for it to happen.)
My point in sharing this information is that selling is hard, but can be much harder without knowing the process and being prepared for what may happen. Attorneys are needed to prepare and complete the paperwork, but they are not trained or experienced in what I just described — just as I am not trained as an attorney to prepare the correct paperwork to complete the transaction.
So, as the Boy Scouts motto says, be prepared. The best way I know is to make sure you have the right attorney, accountant, and intermediary in your corner when you decide to sell your business. At American Business Brokers & Advisors we pride ourselves on having closed hundreds of transactions and working intimately with our clients so the things I have mentioned don’t happen.
This article is courtesy of Terry Monroe, American Business Brokers & Advisors newsletter, March 2023.