After years of growing a profitable business in the northern suburbs, Marvin woke up one morning and knew that it was time to get out. Now, it just might’ve had something to do with a very cold temperature and continued frozen forecast. But for whatever reason, Marvin’s brain flipped a switch and retiring and moving south were all he thought about.
Well, as luck would have it, a fellow Rotary member named Alan, expressed an interest. They sketched out an agreement then had Al’s lawyer put it in legalese. Inside of thirty days, Marvin had put his house on the market and moved to Florida.
It was everything Marvin had dreamed about: moderate temperatures, relaxed schedule, and the beginnings of a social life.
Three months into retirement all was going well. His Minnesota house had sold. Alan’s business purchase payments were coming in steadily.
Six months into retirement he couldn’t believe he hadn’t done this sooner. But Alan’s payments were starting to be late…
Twelve months into retirement something was rotten in Denmark. Alan’s excuses were not ringing true so Marvin made a few phone calls to contacts he still had back in Minnesota. Marvin’s friends told a different story. Alan was lying to him.
It took six months of expensive lawyering to win back the keys to his now badly damaged business. Three million dollars of inventory had evaporated and he would never see a penny for it.
What did Marvin do wrong? Just about everything.
Didn’t use a professional in transitioning the business
The deal he struck with Alan seemed fair. However, it was never tested in the marketplace. Some investment in candidate exploration would have given him qualified proposals to compare.
Didn’t use a professional in transacting the deal
A lawyer only has one client at a time. Alan’s lawyer wrote up a nice contact.. for Alan. Always have your own interests separately represented. Preferably by lawyer experienced in deal making.
Didn’t monitor and verify the progress of the buy-out
When a business is essentially buying itself (little or no skin in the game from the buyer), proper documentation and systems are critical.
What did Marvin do right? Well, he did take action to correct the situation, even if it was late in the game.
And how did Marvin make out?
He moved back to Minnesota (in the winter too dang it) but retained his Florida home. After five years of rebuilding, he engaged the Packard Group and sold his business (again). This time he had several suitors and was able to choose among them for the best long-term deal. He also had professional representation in the crafting of the contact.
I’d like to tell you that he recouped all of his losses, but that’s just not true and five years was not enough time to replace that much value. He did, however, get back down to his place in Florida. Five years older but infinitely wiser and lived out his remaining years contented and happy.
The morale of this story: retain and pay for professional help. You might want to think that business transition advisors siphon off some of the profits you could be realizing, but most transactions completed by professionals stay sold. This is not true of handshakes, napkin sketches, and one-sided lawyering.