Establishing Seller Trust

Establishing Seller Trust

The relationship you build with the seller, between the initial contact and your running of that business, is much more important than the “transaction” that you conclude with them. Like any relationship, it is based on trust and takes real sustained effort, and conscious planning to develop and nurture.

Business owners have a lot of options when they decide to sell their business, from selling to a strategic or financial buyer, selling the business to the internal management team, or selling to a searcher who will step in to operate the company. You have to earn their “confidence” in a relatively short period of time, if you want to be seen as their best option.

Overcoming significant hurdles

This is one of the biggest decisions in the seller’s life and you only get one chance to help them get it right(See Blog Post – Seller Profile). They have to “trust” that you will be able to raise the funds from a bank and investors, navigate through closing and competently run the business well enough to pay down their seller note – all without major disruptions to their customers, suppliers, employers and local community.

In all likelihood you will not have had much, if any, experience or background in their industry, nor the technical skills to take over and run their business. Your pockets are not deep, and you may be younger than many of the managers in the business. It will be clear to them that this may be your first “rodeo” and perhaps your last!

To overcome these objections, you will want to highlight these “weaknesses” instead of hiding them or making excuses. Transparency and openness are the first steps to building trust. You bring energy, a willingness to learn quickly, patience, humility and, your most single important attribute, the desire to step in an operate the independent business. No financial buyer, and few strategic buyers can provide that assurance.

Sellers want to trust you, but are skeptical

When sellers are first asked to provide financial information, Paul Thomson at Scottish American found that many “were afraid I was going to steal their business and walk away with their customers, which was the furthest thing from my mind”. Many sellers believe that after running their business for a few decades, that it might be easy to replicate.

One searcher overcomes this fear by immediately setting parameters on how best to communicate, whether by company email or private email, direct cell phone calls or calls through their office, and private fax and mail addresses to keep away from “prying eyes and ears”. The description of an NDA(Non-Disclosure Agreement) and what it means often puts sellers’ concerns at ease and provides the chance to set the stage for future interactions once it is signed.

Sellers want the transaction to succeed and have a lot at stake in the outcome. They are watching everything you do, not just listening to what you say. Finding opportunities to make promises that you can meet, and even over-deliver on, are important. Remind them when you committed to deliver something and are following up with it; don’t just let it happen without reinforcing their trust in you.

Take notes, remember their personal and business details to show them that you are listening and caring. Be prepared to listen to their “stories”, perhaps many more times than needed as they bring you up to speed with the business. Ben Murray from New Forest says “find opportunities to spend time in person or on the phone with them, don’t hide behind emails or text messages, which are less personal”. Doren Spinner at Norfil observed, “They want to believe you. They want it to work. Don’t give them opportunities to distrust you and you’ll be fine.”

There is also an inherently “long tail” to a search transaction in the form of the seller note. The owner has to develop confidence that the searcher will repay the loan over the time frame, a much bigger leap of faith than simply collecting cash at closing. Ben Murray commented that “I think they knew the business well enough to know that it would produce the cash if it was competently run.”

Remember, you will also have to trust the seller beyond the closing date, for as much as a half a decade. One searcher pointed out “Post-transaction, you will be extremely dependent on the seller for a certain period of time.” When and if you lose trust in the seller, it will be challenging to decide how to balance the short term gain with the long term pain. If things don’t feel right, you may be better off calling off the transaction.

You want to trust the seller, but a lot is at stake

In most circumstances, trust is reciprocal – the more you can trust someone else, the more they will trust you. However, one searcher points out that “You barely know each other and are in an inherently adversarial position as you negotiate price, terms and the nitty-gritty of the transaction.” Each negotiation session may result in diminished trust as the seller feels they “gave in” on a particular point. Nurturing trust will take time and certainly multiple instances of “trust building” activities on the part of the searcher. Marc Cussenot, a self-funded searcher/CEO of Precision Concrete Cutting, observed: “I have realized there are ups and downs about trust – when things reveal to be true or work well, trust increases. When the negotiation is hard or when there are disagreements, trust decreases.”

The due diligence process is fraught with an underlying “proof” that the seller is not hiding things nor misrepresenting facts about the business. Ricardo Aguirre, at Lasalle Hill cites former US President Ronald Regan’s statement “Trust, but verify”, an old Russian proverb. Searcher Cisco Liquido at Montserrat Capital says that “Fully trusting the seller is naive.” Most important here is to be sensitive to the seller’s reaction to this “invasion of their business” and point to the fact that the “process” dictates these measures.

Andrew Mondi points out that “I did not know why the seller was selling and this was a major source of hesitation for me.” Others have shared similar views and return to the question of the sellers motives regularly throughout the process to gauge consistency and clarity on the fundamental rationale. Sellers often find it difficult to articulate their feelings through this very emotional process. You want to hear consistency in their reasoning for why they are selling now.

Be careful not to mis-read the sellers actions. Paul Thompson, Ben Murray and Ricardo Aguirre were all interacting prior to closing with employees and even some customers before the closing date. If your seller does not permit this access, don’t feel that you have lost their trust, they are just being cautious about the potential impact and disruption it may have and are not comfortable with providing that level of access.

In many instances there is more than one individual in the seller conversations. Equity partners, the seller’s accountants and attorneys, spouses and family members all are weighing in with their own opinions about the competency of the searcher. It is critical to view any interactions with these parties as opportunities to reinforce their own trust by your communications and actions.

Make this personal

Use the rule of thumb to “listen with your two ears and speak with one mouth”, with the seller speaking 66% of the time. Encourage them to talk about the personalities in the business, their dreams for after they move on, and how this might impact their family. Spend time with them, and not always focused on business. Mike Donovan from East Range cautions, “Don’t try to “cozy up” too quickly. Proceed gradually as you move through the process.”

Be willing to share elements of who you are, but be mindful that you want to be focused on the seller, not so much on yourself – let LinkedIn speak for you instead. Avoid TMI, but Andrew Mondi of Lyndhurst Capital observed, “I revealed personal information about myself, interests and my spouse and made comments that demonstrated basic industry knowledge”.

Paul Thomson found it helpful to “have endless conversations about what it would be like in a post-acquisition world. I’d tell them they will know the cash is good when it hits your bank account and walk through with them what each of us would do.” In contrast, another searcher found that owners were intimidated by their investors/advisors and learned to minimize dialog about them.

Ricardo Aguirre advised, “Be humble about the challenge of running a small business. I made it very clear that acquiring the company was an important step in my career.” Avoid the jargon-filled language of your corporate past. Make it clear that you are working hard to learn about their industry and business; let the owner be your teacher. Don’t let your words sound like you come from a Private Equity firm.

Don’t talk about the changes you might consider for the business; instead learn what they would change and be non-committal about your own thoughts. It is better to avoid being seen as premature in your judgments. Watch the seller’s reactions closely, and calibrate your communication accordingly.

Learn from your mistakes

Trust during the search process will ebb and flow and needs constant reinforcement. Be vigilant of the impact of your actions on the seller in order to head off a downward slide in how the seller is perceiving you.

When you do hear a “no” from the business owner who wants to cutoff discussions with a seemingly plausible reason, be aware that you may not be hearing the “real” reason. “I have decided not to sell the business” may really mean “I have lost confidence in your ability to take over my legacy”. The real truth may be too difficult for them to disclose. You may never get candid feedback and only time will reveal what they do with the business. It is better for you to “take the high road”, express disappointment, and keep a door open to future discussions. That “no” could turn into a “yes” as the seller returns to the daily grind of their business.

With each such reversal, it is critical to go through a self-assessment exercise that probes where the elements of trust may have broken down. Put yourself in the shoes of the seller and imagine what was heard from the words you used, your frequency of contact and attempted repairs after tough negotiations. Debriefing the process, your actions, communications and mistakes will benefit the next transaction and reinforce that practice and repetition will make you more competent after each setback.


Charlie Green, the author of “Trusted Advisor“, who regularly blogs on the subject of trust, emphasizes that you are working to show your “credibility” as a buyer in all the interactions you have with the seller. Additionally, striving for “reliability” is a lot more tactical in your interactions, commitments and follow through. The seller and those who surround them are watching carefully what you do, not just what you say.

Much of this does not come naturally, and while it is easy to read about and listen to wise counsel, there is no substitute for just plain practice and repetition. I observe that searchers improve their skills in this area, often as the result of failures along the way, as time proceeds during their search. Treasure the learning, it will have an impact on all of your future relationships after you successfully complete your search and are CEO of a business.

Search On!!

Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I regularly update individual blog posts, add to the Reference section and Search tips, so visit the website regularly.

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Random Quote

45-“Strategic partners” are very important to the business searchers.You want to rely on some trusted providers to support your business, you can’t do everything yourself!(See Blog Post-Strategic Partnerships)

42-Start early on legal documents, they often delay closings while under LOIBoth the searcher and the seller are plowing new ground and it takes a while to comprehend the meaning of all of the legal details .(See Blog Post-Getting to closing)

63 Searchers make promises they can meet to build trust with sellers. It is important to provide incremental opportunities to show that you can be counted on to deliver.(See Blog Post-Building Trust with Sellers)

34 Searchers who get access to employees before closing are more likely to close. Once the seller begins to confide in their employees about the sale of the business and introducing you as the “new owner”, they are more likely to proceed to finalize the transaction than to change their mind at the last minute.(See Blog Post-Getting to Close)

07-You are not a PE firm, don’t act like one!
Potential sellers resonate with your taking over their legacy, a PE firm is simply adding to their portfolio. Make sure your website looks personal and non-intimidating.

04-Fight Seller Fatigue in Due Diligence!
Sellers get worn out in this process. It is highly emotional for them, probably their first time at relinquishing their “baby” to someone else. During LOI stage, make it a practice to communicate with them, in person or by phone, every 2 days.

53-Holding monthly “all-hands” meetings indicates your transparency. Trust employees with what is going on with the business and they will trust you more .(See Blog Post-Communicating with Employees)

06-Use metrics to drive decisions
Track what is most important for your search – getting in front of prospective sellers to make offers to buy their business. Track the number prospects, IOI’s, LOI’s and set goals for yourself! If you measure it, you can improve it.

22-When in conflicts arise, remind professional advisors they work for you.
Inevitably, you will disagree with some advice you are getting. After checking multiple sources, do what feels right to you and move forward. You will have to “live” with your own choices, not the professionals!(See Blog Post-Professional Support)

18-Every day that goes by during Due Diligence raises the chance that you won’t close!
Time is of the essence when it comes to moving from a signed LOI to closing on your business. Seller fatigue sets in as the closing date gets extended and the seller constantly re-evaluates their motivation to sell. Only you can push the process along.(See Blog Post-Due Diligence)

44-Plan ahead, give thought to the small details of how you present yourself as the new owner. The first introduction to the employees of the business has a huge impact so you want every word to be rehearsed!(See Blog Post-Taking over the business)

50-Don’t expect immediate “loyalty”, the previous owner earned it, it takes time. You will need to earn the trust of your employees by your actions, not your words. (See Blog Post-Seller Tranisition)

35-Searcher CEO’s need to be prepared to walk away from volume orders if margins will decline. It takes a forward thinking CEO to seek out higher margin, value added opportunities to grow profits, not revenue.(See Blog Post-Wearing the sales hat)

09-Learn from others – read case histories
Over 40 case histories have been written about funded and self funded searchers in a variety of industries and historical settings. Each have great “lessons learned” and are worth the $10 cost to read them. Searchers are learners!

39-The business seller is “hiring” you to run their business. The owner trusts you enough to turnover the “legacy” of their business to you. (See Blog Post-Searcher Profile)

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