- Announcing the Sale of Your Business: Common Employee Questions and Concerns (3/19/24)
- How Getting Your Business Valued Shapes its Future (2/20/24)
- Common Challenges to Selling a Business: Business Owner Insights (1/25/24)
- Considering Selling Your Business in 2024? (12/13/23)
- 12 Ideas to Attract and Keep Employees (11/13/23)
- Hope is Not a Strategy…and Private Equity Isn’t Your Escape Route (10/11/23)
- How to Successfully Sell Your Business to an Employee (9/25/23)
Penny Wise and Pound Foolish
It's an English idiom that means someone is so careful about the small matters (pennies) that they become careless with the big ones (pounds.) Sometimes when an owner is selling their business, they try to win every little point in negotiations with the buyer and it ends up costing them the big ones.
Typically when a business sells, there is an "unpaid consulting" period built in. A seller can't just hand over the keys like when you sell a building; the seller has to train the buyer on how to run the business they just bought. Buyers usually want a longer training period and sellers want it to be as short as possible. This is a negotiating point, and buyers will generally pay more for a business that has a more robust transition period. If the seller focuses too much on negotiating a shorter transition period, he risks losing much more in the final sale price.
Or (I rarely use hypotheticals -- these have actually happened):
A buyer comes to the table and wants to put half down in cash and do the rest on an earn out. This buyer has good experience in the industry, has many relevant contacts, and has a strong capital base to grow the business. In negotiations, the seller requires that the deal close in 20 days (a random number) and that it is non-exclusive (meaning anyone can swoop in and pull the rug out from under the buyer up until the day of closing). The buyer - quite predictably - walked away. He was offended by the terms and decided to invest his capital and expertise with sellers who weren't so demanding. The sellers were going for a quick close and were holding out for a better deal instead of allowing the buyer the time he needed to properly conduct his due diligence. It was a foolish play and they lost a great buyer.
When you work with a professional business broker, let them guide you on what deal terms are most important. It's different for everyone. Some sellers are particularly sensitive about taxes, while others want to maximize their sales price and are willing to take their purchase price over time to get it. Focus on the big things and let the little things go...you will emerge with a better deal and a better relationship with your buyer.
Respond to this blog
Posting a comment requires a subscription.