There are two sides to every story. Two parties are given the same information; however, they end up with completely different perspectives. When working with buyers and sellers on a transaction, it’s important to remember how often this happens. Each party focuses on their own side of the transaction. Because of that, they often misunderstand, or simply hear what they want to hear.
As transaction advisors, we ensure clients know the “what,” “why,” and “how” of the transaction for their own purposes. However, buyers and sellers also need to be sure they are aware of the perspective of the other side. It’s our job to share an understanding of what desires and fears are driving the other side of the transaction. Throughout negotiations, things are said, assumed, and done in response to underlying motives of the parties. Failure to understand those motives can turn a deal upside down.
Not surprisingly, the parties in a business transaction have many opposing motives with price, payment terms, risk, and liability. These are the key points of negotiation. Typically, buyers focus on three critical success factors for the business: continuity of the business/revenues, financing, and liability. Sellers, on the other hand, focus on price and payment and sometimes business continuity for their own legacy.
As the Seller’s advisor:
It’s important to share with the Seller that they will be asked for many, many documents. The reason for the request is to make the Buyer comfortable with the risks inherent to the business. They’re not just trying to make life difficult by asking for every document ever created by the company! In addition, the Seller needs to understand that a deal involving a bank loan, specifically an SBA loan, may require additional documentation and may take a lot longer. The Seller may not care how the buyer finances the transaction, but it is important to set expectations. It’s possible that the buyer may have obligations to the bank that could slow down the transaction.
As the Buyer’s advisor:
It’s important to inform the Buyer that the Seller may have a high level of emotional connection to the business. The advisor may have to highlight that some parts of the negotiation may be particularly difficult for the Seller. This may include addressing how loyal employees will be treated. The Buyer should understand that the Seller may take offense to questions asked by the Buyer. This can occur when no offense was intended. The business and the transaction are personal to the Seller.
Advising with the “Why” in mind for Buyers and Sellers:
Our most important role as advisors is to guide our clients through the transaction by setting expectations. Many buyers and sellers only go through a business purchase and sale transaction process once. It’s our role as advisors with many experiences and stories to share not only the “what” and “how” of the deal, but most importantly, the “why” from both sides of the transaction and throughout the transaction. In doing so, we help them negotiate a path through the hard terms of the agreement, but also the softer aspects, which more often upend a perfectly viable transaction.
Legal Disclaimer: This article contains general information. Do not view this article as legal advice. Talk with counsel familiar with your unique business needs before taking or refraining from any action.