During the process of brokering a business, we note several “bookmarks”that occurred during the process. The first is certainly when the seller engages a Broker.Another is when an acceptable Letter of Intent is signed by the Seller. A third occurs when a Contract is signed by both parties, with a fourth following the Buyer receiving funding. The final bookmark is the closing or settlement, were money and keys are actually exchanged.

These bookmarks are not individually, monumental events, except for the closing. However, during the selling process a certain psychology can creep into the Seller’s thinking that can be monumentally devastating.

The decision to sell one’s business can be depressing, it can be thrilling for the Seller, or it can be simply like turning a page in a book, where the Seller simply moves from one activity to another. But there is no question that in many cases, when he or she makes a decision to sell, that the Seller is mentally gone, well before the settlement occurs. This is something that is critical for any Business Owner to understand and guard against, whether you are represented by a Broker or trying to sell your business on your own.

At the time we sign a listing agreement with the Seller, we unfailingly warn him or her to keep the business thriving, as though he/she has no thought of selling. We tell the Seller to continue to make plans and moves for both short and long term maintenance and even increases in sales. We tell them to do everything they would normally do in their human resource areas, so that the employees have no loss of incentive in their own daily activities. The business environment should remain clean and attractive, so that the Buyer is impressed with even the cosmetic aspects of the business, which reinforces the successful look of the business, in every way.

Finally, inventory maintenance is critical! In retailing, there is nothing that speaks to success like clean, organized and well stocked shelves. This is one of the areas we find Sellers to be most deficient, during the sale process.

The bookmarks suggested above, each appear to denote specific times where Seller may let up, thinking he/she can put feet up and relax. It is probably worst once a Letter of Intent is signed; however, in the vast majority of cases, a Letter of Intent does not constitute a Contract of Sale. Either party can walk away, without liability or obligation to each other. But because price and general terms are agreed, the Seller (and the Buyer,) sometimes treat the Letter of Intent as though the deal is done.

As we write this, we are currently engaged in a Retail business sale where this has become a catastrophic issue. We have warned the Seller, (on a weekly basis, both verbally and through email,) about the dangers of reducing his vigilance and keeping inventory up. Those warnings have gone unheeded. Specifically as a result of his allowing the inventory to erode by almost 50% below his normal levels, sales have diminished for the last two (2) months, compared to the same two (2) months in the previous year. The Buyer is not stupid! He can walk into the store, see the partially stocked shelves, and understand that something is most definitely amiss.

Because the attorneys for both parties have been slow to put together the Contract of Sale, this stage of the sale has dragged out far longer than it should. That certainly plays a part in the Seller’s mental state, but it cannot excuse his actions, or reduce the problems it has caused.

The result of this situation is that the Buyer has reduced his offer by 40%, from what was originally stated in his Letter of Intent. The Seller has almost no choice in the matter, at this point. Certainly, he can refuse the current offer, but it will take him months and months to recover the goodwill and resulting momentum of selling activity that has been damaged just over the past two months. We have an alternative Buyer, but that person is also taking a critical look at the current state of revenue and profits, and rethinking the amount to be offered, or whether any offer should be made at all.

The moral of the story is that the deal is never done until the Contract is signed, and you – the Seller – have your money, in your pocket! Please be very careful, Mr./Ms. Business Owner, not to be the root of your own undoing!

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

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