Truth is truly stranger than fiction, and I continue to be amazed at how many times a business owner with their head in the sky comes crashing down to reality in a very painful manner.
One such case was when a woman owner of a high end men’s and women’s boutique shop in the Virgina Highlands area of Atlanta called us to help sell her business. Now for those of you who are unfamiliar with Virginia Highlands, it is one of those “hot” areas of town where merchants want space and will gladly dismantle an existing business to install their own concept.
When my partner and I met with the owner and asked her how much she wanted for the business, she said $455,000 which I thought to be a rather odd number both due to it being very specific and considerably higher than the business was worth based on its financial performance.
I always ask an owner how their asking price was arrived at, and most of the time I hear one of the following answers: 1) It’s what I want; 2) It’s what I have invested in the business; 3) It’s what I owe the bank; 4) It’s what I need to pay all my debts and to pay back my loans; 5) I put blood, sweat and tears into this business, and I will not sell for less, etc.
I have learned long ago that trying to convince an owner that their expectations are unrealistic when I first meet them will get me shown out the door very quickly without receiving the listing. So I prefer to set the listing price at whatever the business owner wants and let the buying public establish what they feel the business is worth.
So I took the listing at a price of $455,000 all cash knowing full well that no one would buy the business. And six months passed before we received any bonafide offers. At that time, we had two women and one man making offers between $300,000 and $325,000 with differing terms and conditions. Long story short, the owner rejected all three offers because she felt they were not suitable and did not represent the true value of the business as she saw it.
Twelve months into the listing, one man presented an “all cash” offer of $250,000 for the business. This offer was summarily dismissed by the business owner. Now I would like to point out to you that this latest offer was $75,000 less than the best offer previously received.
Eighteen months into the listing, an offer of $184,000 with terms was received from a man. The business owner was so burned out that she accepted the offer even though it was $271,000 less than the listing price, $141,000 less than the first bonafide offer with terms and $66,000 less than the “all cash” offer. The business owner wanted and needed closure so she could move on with her life.
And now the story takes a wicked turn. On Monday of the week of closing, the buyer changed his mind and backed out of the deal. So the business owner and I were left shaking our heads over what a disaster had just taken place, and the light at the end of the tunnel vanished in an instant.
If she had decided that freedom was more important than money when we first met, she could have been less aggressive with her asking price, attracted more buyers and probably sold her business for between $300,000 and $325,000 within 6 months. Then, at long last, she would have been free to pursue anything she chose. But greed reared its ugly head, and the business owner paid the ultimate price of closing her business and receiving nothing for her many years of hard work.
Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.
Loren Marc Schmerler, CPC, APC is the former business advice columnist for Sam's Club. He has been a business broker since 1986 and works with business owners and business buyers in every state of the country. If you need assistance selling or buying a business anywhere in the United States, you can reach Loren at 404-550-1417, 24/7/365.
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