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Why?

Posted by David Humphrey on 27 July 2017 | Comments

Why are you selling? Some answers to this question scare buyers and can kill your deal. The buyer knows you know more about the business, customers and industry than they do. No matter how much due diligence they conduct this will always be true. So this question plays into the buyer’s fear that you are selling because the marketplace has changed and now is the peak time for you get out, as it is all downhill from here.

Unfortunately, the answer that best alleviates the investor’s fear of the market receding, is an older seller who says, “I love this business, and would really like to stay and continue to guide its growth, but my doctor says I should not be making long term plans anymore.” This answer implies the business is strong and the reason for sale is health related, one that is probably irreversible. The seller does not want to sell, but needs to. Now, truth be told, while this answer makes the buyer the most comfortable, it also gives the buyer an edge. It is not just that you are ready to sell, you need to sell, and this encourages the buyer to negotiate harder.

Short of a terminal heath crisis, there are several other answers also considered reasonable, without compromising your negotiating position. When an owner who is over 65 says he/she has worked this business for the last 20+ years and is ready to retire, that answer is acceptable. When they say they have made a boatload of money and are moving to the Caribbean, the answer becomes even more interesting.

However, when the selling owner suggests even though he/she is only 45 and the business is doing well, it is “just time” or they have another business interest, the buyer is going to be worried that the seller is trying to get out of a sinking ship. Being able to show buyers empirical data on why the business and the industry are strong, and that this is truly a personal decision to sell will improve your negotiation position.