Lack of Required Approvals
from Stakeholders

Lack of Required Approvals from Stakeholders

In the last issue (#88) we explored the obstacle: Confidentiality Breach & Employee Suspicion.  In this issue we will discuss another obstacle: Lack of Required Approvals from Stakeholders.

A Favorite Famous Quote
"Most people spend more time and energy going around
problems than in trying to solve them."  Henry Ford

Lack of Required Approvals from Stakeholders

It's hard to believe, but it happens.  Owners put their business up for sale without reaching an agreement with other shareholders or partners who own a portion of the business.  If you have not reached agreement with those stakeholders of your business, it doesn't matter if you reach an agreement with a prospective buyer.  You cannot close on the sale of your business if your partner(s) or shareholders refuse to sign the paperwork.  This is a huge waste of everyone's time.  There may be no more painful experience than going through this type of useless exercise.

Stakeholders include partners, shareholders, family members, franchisors and manufacturers providing exclusive distributorships.  It's important to obtain stakeholders' approval before attempting to sell your business.

Partners and shareholders

If you have other partners and shareholders, get your attorney involved right away and make sure an agreement exists between all partners/shareholders to sell the business.  Ideally, the agreement empowers you to negotiate on behalf of the entire ownership group.  Get this accomplished before you put the business up for sale.

Franchises

If you own a franchised business and you decide to sell, the franchisor is a stakeholder.  Your franchise agreement will address the process of selling your franchise.  It may require notice, transfer fees, training fees, physical upgrades and the franchisor's approval of the buyer.  In many instances, the franchisor requires the buyer to meet minimum levels of financial capability and may require certain types of employment experience.

Before putting your business on the market, it is imperative to talk with the franchisor about your interest in selling your business.  As suggested in the last newsletter, stress the absolute need for confidentiality.  Often, the terms of transfer outlined in the franchise agreement are more ominous than the reality of the process, but the opposite can also hold true.  You need to be aware of both - the legally documented franchise agreement terms vs. what you are being told verbally.  To fully understand the transfer terms, it is best to get your attorney involved.

Exclusive distributorships

Because there will be an agreement that addresses transfer rights and the approval process, exclusive distributorships are similar to franchises.  The manufacturer may have a lot of leverage in approving the transfer of your business to a new owner.  It is an absolute necessity to read your exclusive distributorship agreement to understand the terms of transfer and it is best to have your attorney interpret the document for you.  In both instances--a franchise or an exclusive distributorship--disclose the terms of the transfer process to prospective buyers early in the sale process.

Family Considerations

Your family may also be significant stakeholders that should be considered.  In most instances, the seller needs his or her spouse to be supportive of the decision to sell.  If your goals are not aligned with the goals of your spouse, there's work to be done before moving forward with a sale.  The key is communication to address your spouse's concerns.  A complete explanation and discussion of your decision-making process may be enlightening and earn the support of your spouse.  And vice-versa - you may need to adjust your plans based on your spouse's input.

Depending on the specifics of the situation, your children, your in-laws (spouses of your children) and possibly key employees may be considered stakeholders with whom you should discuss the decision to sell before you place the business on the market.  At the same time, it is important to heed the warnings of the previous newsletter and maintain confidentiality of your decision to sell to the ultimate extent possible.  The more people that know of your intention to sell, the greater the chance of a confidentiality breach.  Only you can determine if your children, in-laws or key employees' interests are so important that you might have to blow up a transaction based on their negative reaction to learning of an impending closing on the sale of your business.

As with other obstacles, it's best to ....