Sale Breaks the Rules
Sale of MaineLobsterDirect.com Breaks Key Sales Rules; Teaches Lessons
When we recently sold MaineLobsterDirect.com, it seemed to us that we broke all the rules. Actually, we only broke a few! A closer look, however, proves the importance of following our system to sell a business and build trust between the parties, particularly when you need to break some rules.
“I thought you were crazy when you told me that I should expose my business to only one buyer,” seller Russ Turner told us for this article. “If I hadn’t trusted you,” he said, “I wouldn’t have let it happen.” This is one of the “rules” we broke. We did, in fact, show his business to only one selected buyer.
“We really appreciated the assistance you gave us in buying this business,” was the reaction of Joi Kressbach. Joi and Lee Kressbach are the “one buyer” to whom we showed the business. They were in just the right position to make the best offer.
Before examining the other “rules” we broke, let’s look at the most common “rules” and the “system” we’ve created to sell businesses.
Most advice about selling your business will give you some variation of the following “rules”:
1) Form your team of broker, accountant and lawyer early on. Learn to manage their advice.
2) Price it right. Get the price and terms nailed down from the start.
3) Prepare a top-notch promotional package. Do it before you talk to the first buyer.
4) Target prospects. Don’t limit yourself to only one prospective buyer.
5) Negotiate professionally. Plan your negotiation strategy carefully. Don’t rush.
6) Wrap it up quickly. By the time you have a good buyer, you need to be ready to close. Get all your records in perfect order.
To implement the “rules,” we at Maine Business Brokers have a system:
1) We spend time with the seller and the seller’s team up-front to do our homework and to build a professional working relationship with them. We use custom checklists for each business to gather the information and items we will need. We set the stage for what follows.
2) The value of the business is carefully reviewed. We advise the seller on the asking price and terms that will attract buyer prospects. The pricing rationale is thoroughly discussed before even one buyer is approached.
3) We prepare a top-of-the-line promotional package, reviewed by everyone on the seller’s team before we start the sales process. We brainstorm about the strategies, key words and concepts that we will use in our sales efforts.
4) We have a process of multiple and simultaneous confidential buyer exposure that predictably produces good results. We have systems to identify the best prospects. We have a reporting system to provide feedback to our seller clients.
5) Both sellers and buyers are taken through a step-by-step process to resolve issues quickly, yet allow time for proper evaluation by both sides before and during any negotiation. All parties are treated professionally, with respect and courtesy.
6) We have systems and strategies to achieve speedy closings when necessary. We maintain excellent professional relationships that enable us to be effective team players with the lawyers, accountants and bankers that are involved.
So which rules did we break? And why is this important?
1) We broke the first rule because we didn’t spend enough time with the seller early on to really get the business details. It was the seller’s busy summer season and he did not have time to get us all the information we needed. We didn’t meet with his accountant, his key advisor, for example, until two months into the listing.
2) We broke the second rule because we didn’t finish the pricing discussion before starting to market the business. The result was that the price was increased after the first meeting with the buyer! We could just as easily have lost the buyer at this point. Sellers, of course, always have the right to change the price at any time. Normally, however, we work on getting this issue resolved early on.
3) Although we produced an offering package, it was produced after the buyer had already made an offer! Talk about backwards!
4) We contacted the buyer prospect before we were ready to market the listing. Regardless of how well it turned out, this is not normal procedure.
5) Finally, to complete the sale within the time frame negotiated, the seller decided to allow the buyer personal hands-on access to the business’ internal accounting software to help complete the information for the buyer’s business plan! Normally, a buyer prospect does not get this access. We don’t normally recommend it.
Our system of selling a business works precisely because it can survive such rule breaking!
In the sale of MaineLobsterDirect.com, we built relationships of trust with both buyer and seller.
That’s the most important part of our system. We try to build strong professional relationships with the clients and customers we serve. This case shows how it works.
Within each broken rule, there is a specific lesson that illustrates the point:
1) We met with the seller, Russ Turner, and his key financial advisor, CPA Paul Rousseau, two months after listing, but we met several times and worked with him to straighten out key details we needed. These meetings were highly focused and productive, as well as cordial. Both Paul and Russ knew us from previous transactions.
“I listed with Maine Business Brokers,” said Russ Turner, “because I expected you could get the job done right. This is actually the second business I have sold through you, and I feel that we’re friends. I kid you that you’re the ‘Grand Pooh-Bah’ of business brokers, but I appreciate that you’re just a straight-shooter.”
“Brad Kaplan and Lee Edwards (Maine Business Brokers’ Vice President and Operations Director, respectively) are actually the ones who worked to straighten out all the details with Paul,” says Russ. “Without Brad’s and Lee’s competence and teamwork, we would not have been able to keep everything on track.”
2) The mid-stream price change was problematic to us, as brokers, because we anticipated a strong reaction from the buyers. After all, the price had already been stated to them. How were they going to know we weren’t just jacking it up because we thought they would pay it?
It helped that the price increase was driven by the change from a stock sale to an asset sale. The tax benefits of an asset sale favor the buyer. It was, however, a hard message to deliver.
“Actually,” says Lee Kressbach, “you earned my trust by your actions, and I could understand the pricing rationale. No, we didn’t want to pay a higher price, but we sincerely appreciated that you were giving us a straight-forward story.”
“Our experience with Maine Business Brokers,” says Joi Kressbach, “goes back to a previous transaction gone awry. In that dealing, you were very candid with us. You built a good relationship with us that we value.”
3) The fact that we produced a package after the Kressbachs had made an acceptable offer seems unnecessary in hindsight, but it proves our commitment to getting the job done. We were also ready to further market the business to other buyers had the Kressbachs not moved forward.
4) Brad Kaplan told the Kressbachs about the listing before we were ready because he had worked with them previously on the purchase of another business that had fallen through and believed that they were qualified.
“Both of us feel like we are uniquely suited to run this business,” says Lee. “I grew up on the coast and have managed the waterfront at two Maine marinas. I spent 16 years in health care operations and financial management while developing extensive competencies in network design. Joi has a background in human resources, office management and high-end retail sales. I’m the ‘operations guy’ and she’s the ‘people-person.’ It works as an effective partnership.”
Our system identifies qualified buyers on four levels: experience, money, commitment and timing. The Kressbachs were right for this business because they knew how to run it, they had enough money to buy it, they were committed to the process and their timing was perfect.
We knew they felt that they had found just the right business after their three-year search. We were aware that they had looked at 30 businesses and had done extensive research on six. We succeeded in persuading our seller to consider them exclusively because he trusted us.
5) Finally, granting the buyer hands-on access to the business’ accounting records was made possible only because the seller and buyer were feeling safe with the situation. “I was finally convinced that they were the best buyers,” says Russ, “and I was willing to gamble that they wouldn’t take advantage of the access I offered.”
“As it turns out,” says Lee Kressbach, “this access to Russ’ records only proved to me – and to our bank - that we were buying a viable cash flow, a solid business. It also impressed us that Russ would allow us this access – it increased our trust in his good intentions, and made the financing much easier.”
We are proud to have represented Russ Turner in the sale of MaineLobsterDirect.com to Lee and Joi Kressbach. But, it’s also interesting to us – and hopefully informative for you – to get some of the additional details on the “rules,” “the system,” and on just how and when the “rules” can be broken.
Even the best systems have to be designed to be flexible and to foster mutual trust.
Known for its quality, home-style cooking. A local favorite and a favorite tourist stop for more than 60 years. Serves breakfast, lunch and dinner in an “upscale diner” atmosphere.
Consistent profitability. Well trained staff and a variety of e-commerce clients.