Let's step back for a moment and examine the process of negotiating the purchase of a business. An experienced real estate agent will usually take part in the dialogue making sure that no feathers are ruffled.
Inevitably, though, the normal offer and sign-backs take on a personal hue. Often it is the purchasers who lose their cool. The vendors may resent being told they have put too high a price on their business, but to them it is only money. The first time purchaser or entrepreneur on the other hand is putting his or her future on the line. The pressure is enormous and so are the misgivings.
Now for an analogy: My late friend Jack had his law office at Ossington & Queen West in Toronto. The area hasn't improved much of late, but in the 1970s, it was truly rundown. Jack’s clients were for the most part burglars, car thieves, wife beaters and robbery suspects. After arranging bail for them, Jack would discuss strategy for the upcoming trial.
A red-head with an unruly shock of hair, tie askew, buttons undone, shirt tails out, and shoelaces dragging—Jack would not bother matching wits with prosecuting attorneys. As he was liked by a number of judges, he played strictly to the bench. Whenever he appeared before a friendly judge, Jack expected, and usually got, a fair shake for his client.
An experienced lawyer, Jack would patiently explain to a client that if they happened to draw a friendly judge, he would proceed with trial but, should they draw a judge with whom jack was not as chummy, he would have the case put over. This could happen over many appearances until Jack found a judge he liked.
The strategy paid off every time. However, a client would often explode, "I want to get it over with. Let's go to trial now." Jack would ask, "What’s your hurry? Are you that anxious to do time in the pen?”
The analogy? At some point in the negotiating process you, the purchaser, will exclaim, "I haven't slept in six nights. I want to get it over with now! Let's have it. Yes or no?"
Bad strategy.
Sometimes a deal goes through quickly, while other times it drags on. Patience is a virtue. You may even want to reconsider your decision to buy the particular business. Surely this is but a trial run, nothing compared to the pressures you will be under in business. Can you take it?
At times, no matter how much you thirst to buy, you must give notice that you are ready to walk. If you are not prepared to walk, you will likely overpay. Do not let the dollars you have invested in due diligence influence your decision. But do not be overly cautious or stubborn either—if the deal looks right and smells right, go for it!
Something to be aware of during the process is that a due diligence report by an accountant may not reveal certain facts that the vendor wishes to keep to himself. In 99 out of 100 cases, there is a proverbial “skeleton in the closet.” If uncovered, it may not necessarily kill the deal, but may allow you to buy the business at a better price.
Manny Drukier has been in business, from manufacturing to publishing, retail to real estate, stocks to stockpots, for the past 60 years. He is the author of two books and resides in Toronto, Canada.
