Hey all,
I currently have a guy looking to buy my shop. He’s never done this type of work before, just wants to jump right in and buy it. BUT, wants to “test drive” the place first. As in, he wants to come in and bring a couple of his own friends to learn everything about the business from the money and how taxes work to the recipes of all of my items… he wants to do this for 2 weeks BEFORE the actual “closing”. I know this is common with a Franchise… but I’m a mom and pop shop.
I dont want this guy and his friends to come in here and learn everything then skip out, not buy the place, then open up shop down the street with everything I’ve taught them! Plus disrupt my business and employees! He said he’ll sign a confidentiality agreement but I’ve seen that blow up in peoples faces.
I was looking up more info on this and people say this is “a sellers nightmare”
I already told them I have to problem training whoever he wants for 2 weeks AFTER closing, but his lawyer came back saying no, he wants training 2 weeks before closing so that the day of closing he can close down, remodel for 2 weeks and change the sign.
What should I go back at him with?
Thanks all for the help, my brain can’t come up with anything right now. lol
Wrong. That’s what it feels like to me. Maybe BodegaLou will chip in from his experience in business brokering. I’d say, Nope…thanks but in for a penny in for a pound.
First, I have ZERO experience in this particular situation, only what I’d do. Steve is a lot more experienced and should chime in soon (once he’s done fishin). Having said that, I’d tell the guy and his attorney, only serious buyers are considered, and serious buyers have no need to ‘test drive’ for 2 weeks. Go bother someone else.
No way in hell would I permit anyone in “my” store for any reasons close to that. Until the deal closes, its “my” store.
I will be buying a shop around fall time, I have been learning the basics for the past several months at a friends shop who is nowhere near where I want to be I would never train someone who could turn out to be a competitor…
And if he thinks he can learn the business in two weeks… Good luck on that one I have restaurant experience, managed several and I still feel overwhelmed sometimes…
Last Saturday I was finally able to toss pies and dress them consistently only to realize that I suck at putting them in the oven (I’m amazed at the fact that my friend still allowed me to continue after I “stretched” a few of them)
Regardless unless you are desperate to sell I wouldn’t agree to it.
Risk/benefit ratio isn’t in your favor
I agree with everyone on this one. If they are serious and not just trying to use you for knowledge to open a new shop…there should be zero issues with your offer to help train them for 2 weeks or longer after the paperwork is signed. What is really going on in their minds? Do they think that coming in and working for 2 weeks with a couple of friends is going to teach them everything? I would offer to do the 2 week training for them and also make yourself available for additional help for the first couple of months to help work some of the new bugs out. If they will not agree to this…they are up too something else and your should protect your investment. Also…how did they approach you about all of this? What is your gut feeling here? :?:
This would make me uncomfortable as well. Due diligence (the process of investigating the facts of the business before closing) does not include recipies, processes etc. Due diligence DOES/COULD include verification of all numbers (sales, costs), lease review, possible inspection of facilities and and equipment, at a late stage, talking to a couple key employees, vendors etc.
On the other hand, do not let this kill a deal you want to make. One compromise might be that the buyer has a substantial earnest money deposit (perhaps 20% of the contract) at risk. Have it in writing that once they enter the store for the 2 week training period that due diligence is considered to be closed and that all inspection items are satisfied and the earnest money is at risk.
I am curious why they want the training etc if they are going to rename the business?
Do they say what they think the difference is between coming in before closing vs after? The only thing that comes to mind is the ability to back out of the deal if they find something they don’t like.
Bottom line is that both parties have to come to an agreement that works for both…If they want this clause and you do not, there may not be a deal and you must keep looking for another offer…Good luck…
Do you think this is a deal that you want to do? If so, there’s surely a way for everyone to be happy. What about a non-compete clause for the two week period. Then they get a chance to try it out and see if it’s actually something they want to do and you get 3 extra full time employees for a couple weeks without having to pay for it.
Make the non compete clause something harsh, like a 5 year period in a radius of 75 miles from your store that includes working for anyone in that radius, not just opening their own store. If they don’t balk at that, you should be fine. If they do, then you probably busted up a scheme.
When people are dealing in good faith, you can simply ask what is motivating the request. You can say that the idea makes you uncomfortable and why and at the same time ask them what they are trying to accomplish with the idea. Tell them you want to find a way to meet their needs but that you have fair interests to protect as well and ask what suggestions they have.
I like indie’s suggestion the best here. Something smells fishy about this situation. Have you had a chance to verify he actually has the money?
When times are really tough, I always joke with my buddies that one of them should apply at the chain store across the street and purposely be the most incompetent worker ever known to the industry! For example, deliver a half-eaten pizza, burp on the phone, etc.
But in all seriousness - I would say that you cant be cautious enough until you have earnest money in your account. As we all well know, therer are some shady, shady people out there.
I think the reason he wants to change the sign etc after is because he has no experience and so it makes sense to him.
I would make sure his financing / payment is completely in place. We were due to close on one of our locations and couple of weeks before closing the sure deal fell through. Ya just never know.
If it were me personally I would say I will be willing to for 2 weeks after period. There are other fish in the see if you don’t like the deal and not on your terms walk away!
Earnest money comes with offer. It is not held in the seller’s account, it is held in escrow by a broker or an attorney. It is not at risk of being lost (paid to the seller) until the inspection/due diligence is completed.
If this is a serious offer with real earnest money on deposit, do not walk away from a live buyer over this issue. I guess that the speculation that this is an innexperienced buyer is probably right. Concentrate on how to make them comfortable while protecting your legitimate concerns and interests.
You have a several good suggestions here: Non-compete and non disclosure agreement, agreement that earnest money is at risk. Here is another: agree that an attorney can hold a portion of the sale proceeds for a period of 30 days AFTER the closing as surity that you will train the buyers. You need to have a clearly defined agreement on what that training is i.e. hours, days, content. It may be that they are just concerned about you taking the money and heading to the beach and leaving them without the knowledge to run the place.
Figure out what is motivating the issue and address THAT first.
bodegahwy really nailed it. If you have a buyer for something that you want to sell, why not put yourself in a strong agreement that you will hold your end of the bargain? That will only strengthen your ability to request tough terms during the transition.
I’m closing on a distressed business (not saying yours is) that is mostly a real estate sale on Friday. It’s been a turbulent 3 month process and could still fall apart in the next 48 hours. Around here, banks are requiring 25% down on a commercial loan, if it’s anything like that in your area then your buyers have already made a significant commitment beyond the earnest money. If it would help ease your mind, surely they would also let their banker disclose that they have loan approvals in place.
You’re in a Conflict Resolution situation and, rarely, are both sides actually at odds over the same issue. Tell them what you need and why, let them do the same.
Exactly my thoughts. Most deals I have been a part of, or observed, have involved a deposit at risk. Escrow does not start until a deposit is made. Until then, your business is still available for sale to anyone.
As far as secrets go . . . You could give him all your recipes and procedures, let him go start his own venture, and you would not even recognize his operation once it got going. I’m not saying I would just give my recipes, etc. away, but its really not a “big secret” that people can or will duplicate.
Bodegahwy may have hit a real consideration. These guys may be asking for PRE training as response to their concern that seller may walk and not provide the agreed services. Not saying it is certain, but new to the business could make them wary. All the suggestions to ask the potentially buyers straight up what their concerns are is a strong and respectful negotiating step. The offer to hold a percentage of proceeds in escrow after sale as surity for training would definitely impress me some if I were buying.
That could lead to a compromise of something like: earnest money at risk + % sale proceeds held in escrow + 1 week training pre-closing + 2 weeks training plus disclosure of all documentation of recipes and procedures, etc. post closing.
A little something for everyone’s confidence and security in the deal. Absolute necessity that the “training requirements” be clearly and unequivocally spelled out in a document by your lawyer, The stronger that clause the less fight when time to release any funds held that are tied to that completion.
I went through the same thing 2 guys wanted to buy my place, come in for a few weeks and than take over… I asked for a deposit and they freaked out. I told them to hit the road… If your not giving me some money uo fron, non-refundable… than screw ya…
I did end up selling to someone else but it was just a PITA… good luck
as for no-compete… there worthless…they can put it in the moms name brothers name etc… and whos gonna stop them from working… that is stupid…
I would tell them give you a 10k dollar non refundable deposit…
lastly, if they havent shown you any money why are you wasting your time… I dont know how much your selling for but I can buy pizzerias around me for as low as 20k fully equipped, real estate not included…
