Cautionary Tale #13: Open Mouth Syndrome
We’ve engaged with a bakery seller several times in the past, and the deals have not worked out for one reason or another. But the reason for the most recent failure was entirely on the buyer, who lacked self-awareness and accountability.
Confidentiality Matters
We understand that it might not instinctively occur to everyone that the possibility of a sale should not be disclosed. This allows employees to potentially flee, competitors to excitedly circle, and customers to get concerned. This can all be avoided by just keeping quiet about all goings-on. In any case, it’s not a done deal until it’s a done deal, so no need to have to manage a rumor mill while you’ve got your heads down in due diligence.
That is unless you love the attention.
Word Gets Out
Before too long, pretty much everyone in the community around the bakery knew a) it was for sale and b) who the potential buyer was. The buyer had spoken to a niece she wanted to hire who had told (her potential future) employees at the bakery about it, who then asked the seller if it was true. The buyer had spoken to many people: friends, family, insurance agents. She was assuming that it was a done deal and not realizing how much damage she was causing to the deal by talking about it everywhere she went.
No Accountability
While the sellers were upset at the situation, it wasn’t enough for them to pull out of the deal. For her part, the buyer couldn’t seem to understand why there was now a lack of trust from the sellers. But that was part of a pattern. She wouldn’t listen to our advice or the banker helping with the deal. She was consumed with her desire for the business and saw the whole exercise as a formality.
The Bank Drops Out
While finances play a big role in getting deals done, banks also have to look to the future. If we give this person this money to buy the business, will the business continue and grow and thrive so we can be made whole and earn some money for this risk? The banker had heard some of the buyer’s future plans for the business, which didn’t seem to make any sense. After talking to her about these things and not perceiving any remorse or accountability, the banker decided to pull the approval for the loan.
As we’ve discussed elsewhere, losing a bank approval is not the end of the world. You can try again with another bank. But by this time the sellers were convinced that not only was the buyer not a trustworthy counterparty, she just wasn’t built to be a serious business owner. They took the business off the market, resulting in a lose/lose/lose for everyone who had invested many hours of time in the project, and the expenses associated with selling a business.
Key Takeaways:
- Confidentiality isn’t just important in life in general, it’s absolutely necessary for business deals. While it may be difficult to keep something so momentous a secret from your team and those close to you, they will understand after the deal closes.
- Business ownership, particularly when you’re a buyer, isn’t about how much you know and how great you’re going to be. It’s about humility and taking the time to see what worked so well such that someone like you came along to buy the business. If the existing owners tell you they don’t think something is a good idea, it’s worth stopping to listen and give their words some credence.
- Bankers are not just ATMs. You are being watched for your character and conduct and bankers will not hesitate to pull an approval should you conduct yourself in an unbecoming manner.
Do you have a business you want to sell and are worried about how to keep it confidential? We have all sorts of ways to assist you. Give us a call.
