What It Means to Sell Your Company to the Wrong Person

What happens when a business is sold to the wrong person? What does it mean to allow the wrong person acquire your investment of many decades? In the mind of every seller out there is not only ensuring the company is sold, but to the right individual. It might involve identifying and actively seeking as many interested acquirers as possible, but at the end of the day it’s all about finding an impeccable party. A person who not only leaves the seller happy and contented with the sales process, but also a person who doesn’t leave bitterness, anger and a feeling of being misused on the part of the owner.

Related: How to Check the Background of a Potential Buyer

What does it really mean to sell a business to the wrong individual?

Wrong view on the profile of a good buyer

There’s nothing as debilitating as having the wrong concept about who the right business buyer is. For some sellers out there, the perfect party to acquire their business and to be approached is a friend, family member, key employee, moneyed customer or a fledgling competitor. While any of these could be the right buyer, they might not be really interested, upbeat or financial able to acquire it. Selling to wrong individuals is costly as owners might end up releasing the company desperately and at a much lower price than they would have done had they widened their pool of potential takers.

Related: Managing Your Time - Assessing Potential Buyers in Advance

Global not always local

Selling to a wrong person means inability to perfectly find the right person to sell to. It doesn’t matter the number of interested people in the business; selling to a person you shouldn’t even be approaching could be disastrous and could cost you money. For instance, many companies in America have realized that selling to local investors takes long, gives less admirable returns and a hustle. Essentially, business sellers forget that the modern marketplace is global in nature and moneyed and interested investors could be on the other side of the planet.

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For instance, a good number of companies in America, United Kingdom and other European countries are being taken over by Asian investors. Also, most real estate investors in London and New York are a new crop of Asian tycoons with a long balance sheet and a huge appetite to spend. Most of them are on the lookout for a potential business in the western world or elsewhere to invest in or purchase.

Limiting yourself to local investors who might also be feeling the economic tremors of the day just like you can be costly. Lots of quiet foreign investors and offshore investment companies are ever interested in a business that’s doing well, located in a strategic city and country such as the United States, Germany or United Kingdom. Sticking to local investors and ignoring the ever-willing and present offshore investor is akin to selling your business to the wrong person. They would have most probably taken your company to the next level and leave you smiling all the way to the bank.

Money is never everything

Even with the best deal on the table that makes the most money business sellers at times realize too late that they’ve made a grave mistake. When it comes to selling a company, so many issues are on the table; going for the investor with the best deal could mean releasing the business to the wrong person. Every owner always asks himself whether the big figure on the table is worth what the investor will be doing to the company or personnel.

For instance, in case the company has been doing well, makes impressive profit and has a good growth trajectory selling it to a buyer who intends to cut jobs and streamline operations could mean doom to employees. If you could avert a disaster and employee downsizing by finding another acquirer you might actually deny the wrong person a clear path to company ownership.

At the same time, if you intend to open another business within the same niche or industry allowing a competitor to buy the company will mean selling to the wrong entity. From the onset, you can avoid releasing your investment into the wrong party by clearly understanding the buyer intentions without being directed or moved by the profit margin put on the table.

Investment prosperity hindered

When a seller cannot see the company he is about to sell prospering under a specific buyer, allowing them to acquire it for monetary reasons or pressure from family or friends means selling to the wrong individual. It pays understanding clearly whether the investor or potential buyer has the skill and intention to keep investing in the company and growing it further. For instance, if a well-run tech repair company in America that has always made profit, grown repeat customers and taken care of old and new employees was sold to a former employee known to be laidback, lazy and a wimp just because he pays well for the business or has influential relatives it means customers could actually takeover and employees will be lost on what they should or shouldn’t do. The future of the company would be in jeopardy and staff will feel threatened and lost affecting productivity and profits.

Shoddy background intelligence

Sometimes business sellers meet charismatic, easy to talk to and friendly potential buyers who look like they’re well-endowed with money that they forget the importance of in-depth background intelligence. It’s the mandate of the owner to take a proactive step to carry out background searches as intensely as possible to understand whoever wants to purchase the company whether they’ve a great deal on the table or not. It’s possible behind the smile, big talk and great promises you’ve absolutely zero clue about the individual and if they actually mean what they are saying.

At the same time, since no employer knows whether they’ll be releasing their business to a past employee, it makes a lot of sense to make it a rule to always carry out due diligence on each member of staff and understand them, from knowing details such as previous and current arrest records if any, character and even drive. It’s foolhardy to expect a former lazy and rude employee who left in bad terms will come and takeover and prosper the company. Understanding employee’s skillsets and their personalities could save you from destroying a business you’ve build for decades.

Related: How to Qualify Prospective Buyers

Talking to third parties

You never know whom you’re selling to unless you really seek to understand, especially if a group of investors or individual has sent forth a third party to act on their behalf. At times, it’s rather complicated than that when a third party presents themselves so well you actually believe you’re talking to a person who is financial able and speaking for themselves.

Rather than waste so much time and then realize weeks later whom you were talking to, or realize much later you sold to a competitor who had fronted a third party to represent them and takeover your business, always carryout painstaking background searches on whoever is fronting themselves as an interested party. Seek to know if the person will be making decisions by themselves and whether other people or entities are involved in the decision-making process.

It’s your business and you’ve made up your mind to sell it. However, you don’t have to sell just for the profit. You might end up selling to the wrong person and rue the decision forever.

Published by ExitAdviser


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