The Seller’s Psychology

Written by Joe Driscoll

November 26, 2009

It’s not just your business. It has been your life for a number of years and it has provided you and your family with a comfortable living. Perhaps it even seems to be part of the family. While the sale of the business offers a special opportunity to establish financial security, the decision to sell is never an easy one.

Even after the difficult decision to sell has been made, the actual sale can be far more trying that you might imagine. It involves more than simply finding a willing buyer. Understanding the process will help you be a more effective seller and will generally make the experience a more pleasant one.

If you are contemplating the sale of your business, your business should be properly prepared for sale and you should be psychologically prepared for the sales process. Like a small child who is frightened by the unexpected while walking through the chamber of horrors at the amusement park, a business owner selling their business will become frightened and fatigued if they embark upon the sales process in the dark.

While a good sale should result in a “win-win” situation for both buyers and sellers, each have contrasting objectives. Buyers will always be suspicious as to your reasons for selling the business. They will continually search for the “hidden reason” that you are selling. If your behavior becomes unpredictable or unreasonable on certain issues, you will fan those suspicions and will risk scaring away the buyers.

The sale of your business, like the sale of any other product, begins with the development of a sales strategy. Think through who the likely buyers may be and honestly evaluate why they would want to own your business. A wise seller is not an anxious seller. You want to avoid shoppers and bargain hunters. You need a buyer who appreciates the economic value that you have created and is willing to pay to own it.

When the right buyer surfaces, reaching a preliminary understanding will not be all that difficult. The major issue will be the value of the business and there are a number of established procedures for determining the worth of a privately owned business. As a seller, you should have researched the different methods for valuing your business and have established reasonable expectations.

If you have given appropriate financial and personal consideration to your decision to sell, adopted an effective sales strategy, established a reasonable price, and been fortunate enough to have located a qualified buyer, you might think the hard part is over. Its not!

A formalized purchase agreement now must be drafted that will describe the sale in exacting detail. Most likely issues will surface that neither you nor the buyer anticipated. Simply put, each of these issues will involve additional costs and risks for one party. The buyer will see the cost of the purchase increasing and you will see the proceeds of your sale decreasing. This is an inevitable and delicate time in every sale.

As a seller, your first reading of the purchase and sale agreement will be an emotional experience. It will appear to be a one sided document that protects the buyer. It will threaten you at first and then will perhaps anger you. You will begin to wonder how this simple deal that you made with the buyer has become so complicated.

The purchase agreement really is a buyer’s document. You must remember that you will be walking away from this transaction with cash. Cash is a commodity that is easily defined and converted to any use you may choose. The buyer, on the other hand, will be leaving this transaction with a business. A business is not nearly so easy to quantify and therefor considerable effort must be made to ensure that it is accurately described.

While the purchase agreement is for the immediate benefit of the buyer, it has considerable value to the seller. Most obvious, of course, is that without it, the business would most likely not be sold. In addition, however, the purchase agreement provides the seller with a check list of the representations that are being made to the buyer. These representations will insure that there are no misunderstandings as to what is being sold.

To the extent that you, as a seller, are not receiving cash as payment, you will want certain representations from the buyer as well. If there is a potential for some continuing liability after the sale, there will be an additional need for representations from the buyer concerning conduct of the business after the transaction. By thinking through the representations that you as a seller may want in these instances, you can better understand the buyer’s need for the protections of the purchase agreement.

Because it’s been more than just a business, be professionally and psychologically ready when it comes time to sell.

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