How important is the buyer’s integrity?

Rock, I’d like to sell my label business to someone who pays me a good price and doesn’t expect me to hang around after the sale. Other than that, I don’t much care if the person and I get along or if he or she is a “good guy.” However, I’ve heard you say many times that integrity matters. Is that something I should be looking at with a potential buyer?

The short answer is yes.

We participate in one way or another in all types of deals in the graphic arts industry each year. One thing we know is that bad chemistry between buyer and seller is like a bad marriage. You need respect, honesty, good communication, and integrity.

To test the chemistry between buyers and sellers, look for someone who shares your values and whose outlook you can relate to. You want a buyer who will take care of your employees, respect your good name, treat your vendors well, be a good citizen in your community, and continue your legacy.

Part of good chemistry is getting a sixth sense about the person. We all have hunches, intuition, and perceptions about the honesty and integrity of the people we interact with.

You may not care about the integrity of the buyer, but it does matter!

We have heard stories over the years of buyers who decimated the business after the sale. In almost every case, the seller had a feeling that something was not quite right, but proceeded anyway.

Here’s a scenario I heard about during a site visit with an owner. He had recently taken the business back from a failed partnership.

The owner had a bad feeling about a business partner in the later years of the relationship. He had heard rumors about substance abuse and gambling. However, the owner was eager to retire. He sold the business outright to the partner and walked away. A least, that’s what he thought. The partner drove the business into the ground and disappeared with jobs in midstream. The seller had to come back from his tropical retirement, and he was feeling the effects of being back in the cold weather. He said, “Rock, tell your people how important it is to trust your gut.”

Here’s another scenario. The seller retained his building and some of the equipment, which the buyer agreed contractually to lease from him. The buyer was a bad dude, though, and he sold the building and equipment as if it were his own for quick cash. How could this happen? How do bad people do any of the crazy things they do. Of course it was discovered, and it’s all in the courts now, but what a nightmare!

Here’s a case where the new buyer walked away from the company, leaving a pile of debt. Not my problem, said the selling owner. Except the collection agents don’t care who they hound. They’re looking for the person with the deepest pockets to wear down and make miserable. When they skirt too close to what’s considered harassment, the account gets sold to the next collection agency, and they start up again. It takes time, money, and emotion for the former owner to pick up the pieces of a failed sale. Your employees, your family, and all the people around you will suffer in these situations.

Unethical buyers have been known to borrow money against equipment still held in the previous owner’s name, open bank accounts, embezzle, damage equipment and property, invite relatives to squat on company property, disrespect or harm employees, and on and on. You think these things can’t happen, but unethical people will try all kinds of things, and sometimes they get away with it. You don’t want people like that near your bank accounts, credit, real estate, assets, or the people you care about.

As you say, you want to be able to walk away from the business and not get involved in the day-to-day operations going forward. Picking the right buyer is essential.

Start with a well-conceived transition plan that protects your wealth and your business. Minimize risks. Prepare contingencies for the sale process. Work with experts who understand the pitfalls. Pace yourself to deal with the phases of selling your business.

Most important: work with a qualified advisor, thoroughly research the buyer, and have legal advisors looking out for your interests (not the buyer’s attorneys) every step of the way.

Whether you are a small company or large – with a complex sale or a simple tuck-in – chemistry and integrity are crucial to a successful sale.

To help you weigh your risks, we recommend reading our complimentary guide, Code Red: 12 Seller Mistakes.

If you’d like help researching prospective buyers and testing the chemistry between buyer and seller, get in touch. Having an experienced advisor in your corner makes a difference.

Work with an expert and trust your gut!