IN 1976 I went into business for myself. The business was a vending and food service company. When I started in the vending industry it was a strong one with reasonable growth. Fast forward twenty years and the industry had become one of the worst industries in the country.
The business had gone from one with reasonable new business opportunities to one where it was a negative growth industry. It was the reason I wanted to move on.
The straw that broke the camel’s back.
We were a really good company. We prided ourselves in providing the best service and product in our market area. Doing this meant that our costs were higher than our competitors.
When I first started in business there were plenty of customers who valued what we had to offer. They were willing to pay a little extra for the quality we provided. Slowly but surely I noticed a change in the industry. First the change came from government contracts and then moved to accounts controlled by unions and finally it came to almost all private industrial customers.
What was that change you ask? It was that our customers thought all vending companies were the same. And the company that paid the most in rebates with the lowest prices won the business.
The problem with the commission model
If we were bidding actual dollars paid, we might have been able to stay in the game. Unfortunately, that wasn’t the way it worked. The company who promised the highest percentage to their customers was the one who won contracts.
As this happened the software companies that served our industry put the ability in their software to cheat the customers. In the industry this was called the R factor (for reduction factor). This meant that it was easy to promise a commission of 20% but only pay 5% with backup reports that looked real.
If I wanted to stay in the game, I would have to cheat to keep my business economically viable. I decided that cheating was not for me and thought selling the company and doing something else was my best option.
My first time through the sales rodeo.
Three years before I actually sold I got involved in a serious negotiation to sell my business. I was doing the negotiations myself and things were going along pretty well until we got to what is called due diligence.
If you’ve not been through due diligence it’s a hard process to go through. In many respects going through due diligence is like entering an alternate universe.
The buyer who acted in a reasonable manner changed overnight. As they were looking at our company and our company books they would ask questions that made me believe their whole goal was to tear our company apart.
In reality they weren’t trying to do this, they wanted to fully understand our company. As they asked the hard questions our communication started to break down. At the same time the economy and our business got better. This gave me the excuse to take our company off the market.
What brought me to the realization that I needed a broker
Fast forward two years. The industry kept deteriorating. The buyer I told to go away came back and wanted to buy us again. This time I decided to change my approach the sale in a different manner.
I decided to hire a broker. It wasn’t that I wanted the broker to find me a buyer, I already had one. I wanted the broker to negotiate for me so I wouldn’t have to talk to the buyer. What I learned the first time through was I got too emotionally involved in the sale and I needed someone between me and the buyer who was a neutral party.
I also thought I could have the broker be our lead person during the due diligence process. As our deal progressed I found that this was partly true. I still had to be involved, but the hard questions would be fed to me through the broker.
In the end, this worked out much better. I stayed less emotionally involved and the buyer got the information they needed to decide whether they wanted to go forward with buying my company.
Why a broker made my deal possible.
I believe that without having a broker involved, my deal would have fallen apart. In fact, I can almost promise that it would.
I found that selling my business, even though it was a lousy business was one that pulled my emotions apart. I had put my heart and soul into the business. When a hard question was asked, I saw it as a personal affront.
When the hard questions came from my broker, I still reacted very negatively. There were lots of time I told him to take the business off the table. When I told the buyer this they just went away. With my broker he would simply ask me whether I wanted to get a deal done and to stop acting like a spoiled child.
He was the one who told the buyer that some of the questions they asked weren’t necessary. As hard as it was for me to believe lots of time he had more authority with the buyer than I had. The reason was very simple, selling businesses was what he did. The buyer saw his answers as having more authority than mine.
The buyer saw my broker as a neutral party. He did a really good job of positioning himself as that person. He also helped them understand that certain pieces of information just weren’t going to come and if they wanted to buy the business make sure that representations I made were part of the representations and warranties in the purchase agreement.
Over a period of nine months there were lots of ups and down. In the end we got the deal done and the buyers were happy with their purchase and I had a chance to find an industry that fit my personality better.
Lessons you can learn
The first time I took my business to market I failed. The second time with a broker was a success. Here are some lessons that I learned that you might want to think about:
- Don’t represent yourself in a business sale. As the saying goes, one who represents themselves is a fool.
- The intermediary you hire can and will say things to a buyer that you can’t say and be seen as an honest broker.
- Realize that as uncomfortable due diligence is its part of the sales process that is necessary. After all, if you were buying your business wouldn’t you want to know as much as you could about it?
- Expect that your emotions will be torn apart. I’m going bet that your business is pretty special to you. Saying goodbye to your business is a hard thing to do.
- Selling your business will take longer than you think. We had a clean business with a motivated buyer and it still took nine months to get the deal done. Expect to spend at least a year or longer working on your business sale.
- Have someone working with you on your business sale that doesn’t have a financial interest in whether the sale gets done. This would be someone besides your broker, accountant or attorney. I call this person your thinking partner.
If you’re thinking about selling your business I would love to have a short conversation with you. I’m going to bet the time we spend together will be worth it. If you’re interested click here to set up a time to talk.
Now that you’ve read my story, why don’t you leave a comment below about your experience in selling a business.