One of the most difficult things an adviser can do for a client is facilitate the sale of his or her business to the existing management.
Whether the managers are children of the owners or trusted friends, the emotional, personal side of the transaction cannot be avoided.
The adviser must create an atmosphere that allows the business to continue to operate on a day-to-day basis without being consumed by the planning necessary to achieve a successful transition. This atmosphere is usually only accomplished if the adviser insulates clients from direct confrontation regarding the contentious issues attendant to any sale of a business. In plain English, don’t let the principals directly discuss the sensitive, certain-to-be-acrimonious matters.
The buyers feel they have created much of the wealth they are purchasing, which is manifested in their position that the sellers are asking too much for the business. The buyers feel the sellers are giving them no credit for the wealth they have already put in the sellers’ hands. This is especially acute in family transitions.
The sellers, on the other hand, feel they are providing the buyers the opportunity to acquire an ongoing business that they, the sellers, took all the significant risks to create. They feel they are offering the buyers a great deal. Sellers often feel they have provided the buyers with handsome salary and benefit packages while the buyers learned the business and rights to acquire it.
To meet the business and personal objectives of the parties, the transaction must be centered upon the following:
* What do the sellers require for their retirement and family circumstances?
* What can the business afford to pay the sellers while continuing to provide incentive to the buyers and a sound financial operating position?
* What is the business worth or, sometimes, what is fair given all the facts and circumstances of the relationships and the exigencies the business faces?
If the sellers are providing financing, collateral is an issue. Buyers often translate the demand for collateral and guarantees into, “If you don’t trust our judgment, then why are you turning the business over to us?”
The adviser should go to great lengths to assure that decision-making is made upon business terms and conditions. This requires patience to explain the business basis for each position taken.
The adviser needs to avoid the natural tendency to cut to the bottom line or engage in personal attacks and challenges to achieve his or her purpose. Such tactics undermine the ongoing working relationships among the principals. The adviser should continue to facilitate ongoing communication and cooperation among the principals after closing to assure the success of the transition.
If the parties have not stayed in contact and the business gets in trouble, so does the transition, and the wheels come off quickly. James Aussem ([email protected]) is a partner with Brouse McDowell. He can be reached at (216) 830-6830.
