I had several interesting situations arise over the last few weeks with business buyers which emphasized the importance confidence building that both buyers and sellers must have regarding themselves, the business, the deal, and each other, in order to successfully complete a transaction.
The Confidence to Run A Business
It is easy for a most buyers to look at a business for sale and identify areas they believe can they can easily improve as the new owner. A buyer emailed me this week and provided a history of all the businesses they looked at over the last six months. Within the recap of each they stated: “I can easily run the business”. Yet here it is, six months later and countless businesses having been reviewed, and still, they haven’t bought any. Although they provided reasons for each, much had to do with their level of over confidence and questioning why the business had not grown exponentially when it was, in their mind, “so easy to run”. .
While having this level of confidence in one’s own ability is certainly a good thing, buyers have to be realistic about their skills and moreover, to recognize that you don’t just walk into a business and expect to make changes that will have immediate positive effects. In fact, the opposite usually holds true.
Before anything significant change is considered, a new owner needs to learn the inner workings of a business in order to make effective decisions. Often times, the current owner does not possess the acumen to make quantum leaps and so opportunities do exist however, buyers need to understand that few businesses are really easy to run. Some are more complex of course, but they all come with their own unique challenges (just ask any business owner whose business is not for sale). While it is important to develop potential improvements while analyzing a business for sale, buyers need to keep their confidence in check an not overestimate their own skills.
Conversely, many businesses will transition well and can succeed and grow under a new owner if that owner is the right person for the business. Therefore, it is paramount that one have an objective view of their own talents in order to gain ample confidence that they can in fact run a particular business.
Buyers Can Easily Lose Confidence In A Sellerther
Past blog posts have discussed the importance of buyers balancing emotion and logic throughout the business-buying process. The same holds true for sellers if they are going to finance the transaction; they need to have confidence in the buyer to operate the business in order to make good on the note, but back to buyers for a moment.
I have this buyer looking a particular business which she really likes and, in her mind, is highly qualified to operate. The deal terms were agreed to and the formalized due diligence phase had begun. Due to one area of the business which does require certain licensed skills, the seller has agreed to remain on board for a two year period to oversee the transition of these responsibilities to an understudy who is already on staff, but inexperienced. While this particular disciple is not paramount to the business’ success, it is, nonetheless, very important. The seller has also assured the buyer that they will be available for any post-sale consulting and assistance (they all do).
During the negotiations and subsequent due diligence, the parties met countless times. The seller was habitually late for meetings and even missed two of them altogether. These incidents continued to build up and chip away at the buyer’s confidence in the seller. She began to think that if the seller isn’t reliable enough to remember meeting times, how can he be counted on to provide support once he had her money. As the discussions progressed, the deal was formalized and due diligence began, this habit continued.
As the buyer neared the end of the due diligence period, the seller’s disorganization, forgetfulness and general apathy about meetings caused the buyer to lose all confidence in him and she aborted the deal – I do not blame her at all. The seller was flabbergasted and could not comprehend why this was even important to the buyer. What he failed to recognize however is that confidence and trust are hard to gain but easy to lose. When someone feels a certain way stemming from the actions of others, it is logical in the mind of the person who feels that way and it is nearly impossible to reverse.
Business purchase discussions and negotiations can be very delicate. Both sides have a lot invested financially and emotionally. Building confidence for both parties throughout the deal is absolutely critical in order to successfully complete a transaction. It is an emotion that impacts both buyers and sellers. Confidence needs to be balanced and nurtured because too much or too little of it will can easily derail a deal.
Have a great week.