Seller's Lack of Emotional Control

Seller's Lack of Emotional Control When Selling a Business

In the last issue (#81) we discussed the obstacle: Lack of Flexibility in Negotiations.  In this issue we will examine a related obstacle: Seller's Lack of Emotional Control.

A Favorite Famous Quote
"During a negotiation, it would be wise not to take
anything personally. If you leave personalities
out of it, you will be able to see opportunities
more objectively.”  Brian Koslow

Seller's Lack of Emotional Control When Selling a Business

For most owners, the decision to sell their business is very emotional.  It's their baby.  Their personal identity is tied to the business.  It's who they are.  And they have poured a lot of blood, sweat and tears into nurturing the business through good times and bad.  It's almost as if the business is a family member.  Letting it go is usually not an easy decision to make.

Adequate planning, understanding of the business sale process and recognizing there will be contentious issues are the keys to managing your emotions.  A good intermediary can help prepare your for the entire process and act as a buffer during negotiations.

The most emotional times in the sales process

Seller emotions are hardest to control at four times in the sale process: 1) making the decision to sell; 2) negotiating the first offer; 3) the due diligence stage; and 4) in negotiating language of the representations and warranties of the final definitive documents.

Good preparation is the best avenue to controlling emotions

The best way to gain control of your emotions is to have planned thoroughly for the sale of your business.  Emotions tend to rise when we encounter surprises that we did not expect and are not prepared to handle.  With proper planning for the sale of your business, most emotional hurdles can be identified and planned for in advance.

Seller's remorse

If you decide to sell your business, make a commitment to do so.  You should know what you intend to do with your life post-sale and should look forward to it.  If you are unsure, at several key moments in the process, you will begin to experience the overwhelming emotion known as seller's remorse.  Going through the motions of putting your business up for sale, and then reneging on the commitment may make you an emotional wreck and create the possibility of significantly devaluing your business in the future.

Determine the realistic value of the business

Establishing the offering price on your business is also an emotional moment.  Seldom does a seller believe the fair market value is adequate compensation for the sweat equity invested.  But, there are formulas for valuing businesses and the purchase price will be determined primarily by those formulas, not what the owner wants or thinks the business is worth.  If you fail to address the emotion of realizing what the realistic value of your business is prior to putting it on the market, you're destined for pain and potential failure.  Overpriced businesses will only sell at their true fair market value and if the owner's expectations vary from that, the emotion of finally facing that realization is painful for all involved parties, and usually results in a failed transaction.

Responding to offers

As indicated in the previous issue of this newsletter series, often the first offer is the best offer.  But, sellers need to recognize that buyers will often start negotiations with a low-ball offer.  Even if your business is realistically priced, as it should be, so many businesses are overpriced that buyers assume sellers have significant negotiating room.  Experienced buyers may be more realistic in their initial offer on a reasonable priced business because they realize they run the risk of an owner's negative emotional reaction.  But first-time buyers, without a lot of previous experience, don't realize the damage a low-ball offer can create.  As a seller it is best to consider all offers and counteroffer with terms that are acceptable, giving the buyer a second chance to be reasonable.  An emotional outburst in response to a low-ball offer is counter-productive.

Don't take the due diligence process personally

Emotions really tend to rise in due diligence.  At that stage buyers delve into many more details and ask lots of questions.  Many times the responses lead to more questions.  At some point the owner begins to ask himself and his advisors "Why doesn't the buyer believe me?  Doesn't he trust me?  Why should I trust him?"  It's important to realize that a buyer has a lot at risk when evaluating an acquisition.  There are really no standard methods of due diligence.  Each buyer and their advisors may approach it differently.  Some will constantly seem like they are criticizing your business.  Others may focus on things you consider trivial.  You never know exactly what to expect.  The only sure thing is that the due diligence process can drive you crazy, and to some extent you will feel under attack.  It's best to realize that in advance, control your emotions, don't take it personally and be as cooperative and tolerant of the buyer as you possibly can.  A lot of transactions blow up in due diligence.  If the seller is mentally prepared for the process, things can go smoothly.

Representations and warranties are not a personal attack on your integrity

The representations and warranties in the final documents can be daunting.  Even in situations where the buyer and seller have built a trusting relationship, resolving language in the final definitive documents is challenging.  It's easy to interpret the standard language in the representations and warranties as a personal attack on your integrity.  Do not take it personally.  Usually, buyers' advisors are using standard language for business acquisition agreements.  If you were buying, your attorney would attempt to include the same language for your protection.  That's important to understand.  In most cases the language of the representation and warranties has not been tailored to the situation because the buyer doesn't trust you.  However, the buyer does feel he should be entitled to standard protections that other buyers receive in their acquisition agreements.  In evaluating the severity of the representations and warranties, ask your attorney which of those protections he would compromise on if he were representing you as the buyer.  This is always a difficult area and sellers often have to compromise against their attorney's recommendations for ideal language.  Knowing in advance that this area will be contentious should enable you to keep your emotions in check.

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