Question: I am thinking of selling my teleservice company myself, but I’ve heard horror stories about being taken advantage of. How can I protect myself?
Answer: Unfortunately, some unscrupulous buyers will do or tell you anything to purchase your business. Once you have signed a letter of intent and received a deposit, your business is off the market to other potential buyers. At this point, an unethical buyer can wear you down for their benefit.
First, the buyer may take too long performing their due diligence, focusing on irrelevant issues. The longer you have to wait to close, the more anxious you become. Also, other potential buyers may pursue other projects. Over time, you may become more willing to concede selling points in anticipation of completing the sale – and getting a big check. This maneuver is called the sliding scale of power strategy.
In the beginning of the transaction, the seller has all the power, but as things progress the buyer starts to gain more power by: (1) talking to the seller’s staff, who are now expecting a sale and may leak this to clients or quit, (2) asking the seller’s landlord to approve the rental space for the facility, (3) finding reasons why the seller’s business is worth less, (4) insisting on taking over the seller’s outstanding receivables, and (5) suggesting different terms or conditions. These tactics are not illegal, but they do need to be addressed at the proper time.
To combat this, establish the price you want for your business and stick to it. You can negotiate a bit, but don’t let the buyer become unreasonable. Firmly address who gets receivables: will the buyer purchase them, or will they collect them for you? What do you consider a viable client, when are you going to close, and who will do the final billing? Does a cash sale really mean cash at closing, or is there a holdback? (Unscrupulous buyers will slip this in at the last minute.) Lastly, limit the amount of time the buyer is allowed for due diligence; a couple of weeks is plenty if you have your financials in order and other pertinent information ready.
Remember, don’t be afraid to walk away from a deal; after all, it’s a seller’s market.