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Are Your Vendors Personal Relationships?

Business Sales and M&A Specialists

In a recent conversation with a Business Owner seeking to sell a 10-year-old business, we discovered that there were many personal relationships intertwined with their business ones. The major issues: the Owner’s brother-in-law’s company provided the major raw material while a childhood friend provided additional goods. Additionally, other suppliers had become friends and everyone enjoyed a weekend vacation in the Owner’s Puerto Penasco, MX (aka Rocky Point) villa.

For a Buyer, this raises a huge red flag.  Questions such as these arise:

  • Will the suppliers stay?
  • Will COGs increase?
  • Will I need to find another supplier or suppliers?
  • What happens in 1-3 years?
  • If I don’t have a Villa, what happens? …

Potential solutions include making sure that fair market value is paid for each good, a contract is in place, and/or other employees have taken the lead on maintaining the relationship.

The Business Owner we talked with decided to take another 1-2 years to disperse the relationship among the sales team as well as determine that all goods were at fair market value.