After the decision is made to sell your business, most store owners are ready to get out. Sometimes in the pressure of escrow, the seller can make errors or completely overlook something important. Michael Miller (names changed for courtesy) shares his experience with us in hopes that others can have smoother sailing with the sale of their business. The nature of business sales has changed over the past decade. What follows  is a brief summary of what can happen to you when you sell, if you are not careful. 

Bruce Carter and his team offer low cost truly independent consultations to business people buying or selling drycleaning, laundry, and coin-op businesses. 

Michael Miller - drycleaner 
After spending 11 years in the drycleaning, laundry, and coin-op business, I recently decided to sell my stores.   As an experienced business person, in drycleaning as well as other industries, I seldom make mistakes. In this case, I relied heavily on the broker, a well known specialist in the dry cleaning industry. That was my mistake. 

I met the broker over 12 years ago, have seen him at all the industry meetings and events, talked to him often, and considered him a friend. John handled several smaller cleaning business escrows for me so it was natural that when it came time to sell my big store, he would handle the deal. 

John spoke to me several times before the store was actually put up for sale. We discussed the value, probable sale price, and the asking price. When I made the decision to actually go ahead and sell the store, I was ready. I have other businesses in addition to the drycleaners that were taking my time. I was tired of the same labor intensive routine, same challenges with the labor force, same customer problems, etc. The business was no longer challenging to me. I was bored. It was time for me to sell. 

Since this was a larger than average drycleaners, John, the broker, told me that the store would sell within 3 months. John also said that he would give me a break on the commision since we were friends. There was no need to fill out or sign a commision agreement or a listing agreement. 

Instead of publishing the store in a listing or print ad, John talked about it with other drycleaners. It was just over a week before my employees knew that I was planning to sell. They heard about this from their friends at neighboring cleaners. This had a large effect on employee morale and the quality of work being produced at the store. Some employees started looking elsewhere for employment. The store was eventually listed in a print ad. 

We did have some prospects come into the store, about six. Two prospects can through the store with their broker, without my broker present. Eventually we ended up with three offers. I was happy to see this since at this point I was even more ready to sell. Of the three offers, I naturally wanted the offer with the highest dollar amount. That is the one I accepted. 

From that point on, there was nothing but problems. The offer was a "gross offer." It included inventory and supplies, but not any accounts receivable. John said that supplies and inventory were always included in the sale price these days, that I should trust him. I told John that if the buyers were not going to pay for the supplies that it was only natural to maintain only a small quantity in the store and the buyers would have to purchase supplies as soon as the came in. John said they knew this, even though they had no experience in the cleaning business. The buyers would later hold this lack of a month's supplies against me. 

It turned out that the broker representing the buyers was an associate of my broker and they frequently worked together. 

The escrow included a two week observation period where the buyers were invited to be in the store and observe the activity. The individual who came for this period arrived late much of the time, had no idea what was involved in a cleaning business, and had difficulty simply following receipts and daily totals. John kept telling me sit back, be patient, the buyers know what they are doing. 

The buyers missed several key meetings to sign documents. They were always away on long weekend trips. They delayed the escrow further by changing their name (a partnership) three times. Each change took and additional three weeks.

The observation period passed. They had their accountant review our books. Then it seemed like nothing was happening for quite some time. We did not hear from them. After a while the buyers broker told the buyers they could stand at our front counter with a clip board during operating hours and tally up each sale as it occurred, just like an audit right in front of the customers. Of course, I did not allow this. The damage to the customers would be felt by me and the new owners. They were invited to stand by the marking counter and tally what ever invoices they wanted there. That was not good enough for them. Their broker talked to me several times and told me he would tell the buyers not to stand at the front counter and audit. He then told the buyers that "yes, it was okay to perform this counter audit." Sure enough the next day the buyers were ready to go at the counter. Again, I told them that this was not okay. It would scare away customers.

Since not being at the counter was not acceptable to them; they had yet to obtain financing; and this escrow was dragging on and on, I told John to let these buyers go and move on to the next interested prospect. 

The next day, the buyers broker called me and begged me to let his clients buy the store. He said the buyers were very interested in my store. Both brokers had a second escrow with these same buyers at the same time as mine and they wanted that to go through. The buyers broker asked me to do him a favor and just keep the buyers happy so the other deal would go through. If my escrow did not go through, the brokers' second escrow might not go through either.

Eventually the buyers obtained financing with a leasing company. It turned out that this company works frequently with the two brokers. The buyers postponed signing key documents several times (many excuses: they were out of town, Fedex was late, etc.). Closing escrow date was set, missed, set, missed again, and set. Buy this time I was ready to sell and ready to get the escrow over and done with. 

When it finally was time to actually close escrow, the finance company would not fund the buyers loan unless more documents were signed by me and the buyers. These documents would be made available at the actual closing of escrow. John told me just to sign them, they were just a formality on the part of the leasing company. Little did I know they turned out to be much more. I trusted the broker, so the papers were signed.

Neither broker wanted to be present at the escrow closing. They told me they did not want to talk to the buyers any more than they had to. They scheduled the closing so I was there at a different time than the buyers. So it was just me and the escrow officer at the closing. The escrow officer had me sign all kinds of paperwork. Then I left. If the buyers showed up later and signed the paperwork, they turnover would be at 6:00 am the next day. I called the escrow company that evening, the buyers finally did come in and sign. 

The next day the buyers showed up four hours late. This would be a pattern for them for the entire four week training period I was there. It turned out the buyers had no cleaning experience and no retail experience. They had no idea how treat employees. It took them only three days to write a letter to their attorney asking him to start legal action against me because nothing was as they thought it would be. In their letter, they listed equipment problems, employee problems, lack of sales, and more. 

A meeting with the two brokers, the buyers, and myself, had the buyers saying they were now happy if I would pay to fix a few pieces of equipment. I agreed and did so. The brokers pulled me aside and asked me again to keep the buyers happy so the brokers would not loose the second deal with the buyers. When I mentioned I was going to contact my attorney to respond to the buyer's letter to their attorney, John told me not to seek the advice of an attorney and that it will all go away. He told me everything would work out okay if I did not talk to an attorney.

They only thing that went away was any assistance from my broker. The four week training period turned out to be one of the worst periods in my life. The buyers treated me like a slave. They did not want me to show them how to run the business on a day to day basis. They told me to follow them around the store where ever they went, much like a dog. I had to walk behind them for the entire day, day after day. When ever they can across something they thought was not right, they would yell at me for it. 

Take this one small example (out of many): One of the buyers called me over to watch him use the telephone. He said it was not working. He was banging on it, pushing the different line buttons, yelling at me because the phone would not work. He insisted I sold him damaged equipment. He demanded that I purchase a new phone system for him. After he cooled off, in front of him I checked the phone cord...It was unplugged. A quick push on the phone line connector and the phone was working again. A very typical example.

After 4 weeks of day to day experiences like that I had more than my share of abuse by these buyers. They told me they were going to commence legal action against me because it was impossible for them to build the business and to advertise the store, they were unable to increase business and I must have known this before I sold the store.

It was then I went to my attorney. I went five months after I should have. I never received copies of all the paperwork the broker had me sign. It turns out that the broker did not tell me that the additional paperwork I was signing at the close of escrow was a second complete sales contract. Now there are two bills-of-sale and two sales contracts, one with my approved instructions and one with the buyer's approved instructions. These two contracts are vastly different and have prompted on going, costly, time consuming, expensive litigation. It has been seven expensive months of trying to deal with this problem. The cost to me will be no doubt more than $50,000.
 
The lessons learned here are several:

• Even if your broker is well respected in the community, even if he is your friend, he is a broker and will watch out for his commision as his top priority.
• If the your broker frequently works with the other parties broker and the finance company, be extra careful for conflict of interest.
• Keep copies of every thing you sign, don't sign any form unless it is filled out in full, don't sign anything you do not fully understand.
• Consult an outside independent third party who has not stake in the deal. Attorneys can be very helpful, but very expensive. Find this consultant before you enter escrow. I would have benefited greatly from an outside experienced consultant.

Bruce Carter and his team offer low cost truly independent consultations to business people buying or selling drycleaning, laundry, and coin-op businesses. In today's business climate, buyers and sellers rely on the business broker to offer advice and guidance in the sale, purchase, and escrow of their store. Unfortunately, business brokers are far from being independent advisors. their primary goal is to close escrow, not to satisfy you. With this goal they are biased in any observation or advice they offer you. 

We highly recommend obtaining the advice and guidance of an outside, independent party who is there to represent you and you alone. A few dollars spent now could save you thousands of dollars and headaches later. Our staff offers a low cost review and consultation of your business and escrow situation including review of offers, counter offers, opening escrow contracts, addendums, closing escrow contracts, and more. We have over a decades experience in the cleaning industry. Email carter@cleanersonline.com for more information.