The Conditional Sale Period of a Business Sale

When a business is sold conditionally, many sellers breathe a sigh of relief that they have found a buyer for their business and that it is smooth sailing until closing day.

This is usually not the case at all. When a business is sold, it usually enters into a conditional period where the deal can theoretically still fall apart. During this conditional period deals can take on a life of their own. This period is sometimes stressful but can also be managed to be as non-turbulent as possible. This article will examine some things that both buyers and sellers can do to make a business sale as pain free as possible during the conditional period.

Keep a clear head
A business for sale transaction is a process that is different than a property deal or other type of sale. A business sale can best be described as being a ‘fluid' transaction. By this we mean there are multiple deal points to consider and numerous pierces of information to be confirmed and verified during due diligence. During due diligence, there is the potential for issues to come up that cause buyer and sellers to over-react. For instance, suppose the review of the premises lease determined that there are no options to extend the lease past the existing term. This has the potential to seriously affect a business so a buyer can get agitated over a discovery like this. The reality is that a standard extension is usually not an issue with landlords. The point is to remain calm and maintain perspective. Sometimes over-reacting to small issues can cause the other party to be more nervous more than anything else.

Dates can be adjusted
As mentioned earlier, a business for sale transaction can sometimes be a moving target. Sometimes it is difficult to get everything finalized during the drafting of the conditional offer and dates need to get adjusted for logistical reasons. For example, selling a franchise business usually involves franchisor approval. This approval may take longer than anticipated so dates (including the closing date of the sale) may need to be moved.

Talk to your business broker
Communication is the key to selling a business. If you are buying or selling a small business through a business brokerage, use their services to the fullest extent possible. A major role that a business broker plays is keeping both parties talking via the intermediary. During the conditional period, it is critical that everyone remain ‘on the same page.' Sometimes, a seller or buyer will question the action of the other and make assumptions as to why things are done a certain way. Sometimes this train of thought has the potential to jeopardize a deal. Again, talk to your business broker.

Be sensitive to the perspective of the other party of the transaction
Sometimes things are done a certain way in a business sale that makes no sense to the opposite party. For instance, suppose an offer is made on a business for sale in Toronto. Suppose that the buyer is a newcomer to Canada and that they are unfamiliar with our laws or ways of doing business. This is not very uncommon, as many business brokers in Toronto will attest to the fact that many small business buyers are new to Ontario or Canada. A new immigrant investor to Canada may be somewhat intimidated and therefore may instruct their professionals to be extremely thorough in the scrutiny of the business and the overall due diligence. Because of this, a business buyer may assume that the buyer is not operating in ‘good faith.' The point is to be sensitive to the perceptions on the other side of the deal.

Selling a business is a process that usually involves a conditional process that is much more involved than a realty deal. Be prepared for a process that demands compromise, perspective and good faith communication.