Mark Pestronk
Mark Pestronk
Q: I am preparing to sell my agency, and I am trying to make sure that I find a buyer that will treat my employees with respect as the professionals that they truly are. What else should I be looking out for in putting together a deal with a buyer?

A: Let's look at sellers' top four reasons for remorse after selling, and then see how those unfortunate outcomes can be prevented by looking out for risks now. In order of severity, the top reasons are probably as follows:

First, sellers have run into major trouble when they allowed a buyer to take over the agency before ARC approval of the change of ownership, and the buyer defaulted to ARC by making unauthorized credit card sales or failing to report cash sales. Sometimes the default was intentional, but more often it was the result of mistakes on the buyer's part.

ARC holds your company responsible for defaults that occur before ARC approval. Worse, ARC claims that you are personally liable for the debt on the grounds that you breached your alleged fiduciary duty by turning over control of your appointment before ARC approval.

The solution is not necessarily to delay the sale until ARC approval, as that could take three months or more if the buyer does not currently own an ARC-appointed agency. Instead, I recommend that the seller retain control over ticket issuance, the ARC bank account and weekly reporting until ARC approval, unless you absolutely trust your buyer with your life.

Second, sellers have regretted selling to a buyer who lost most of the agency's clients shortly after closing. Since most sale prices are at least partly dependent on the agency's performance after closing, a drop in revenue will translate into a drop in the sale price. Sometimes the decline in business is due to a buyer's inexperience or incompetence, and sometimes it is due to the employees deciding to find new jobs despite the buyer's best efforts to retain them.

To prevent wholesale client attrition, make sure your buyer has experience running a similar business. If the buyer does not have the necessary experience, then make sure the purchase price is fixed and as much as possible is paid up front.

Third, if the purchase price is paid in either fixed or variable installments, buyers have sometimes run out of money and been unable to make the payments. To prevent this disaster, sell to a buyer that has demonstrated financial strength, get a personal guaranty from the buyer corporation's owner, and get a security interest or lien on the assets being sold, so that you can repossess the business if the buyer doesn't pay.

Fourth, in most cases the parties agree that commissions that come in after closing that pertain to sales made before closing belong to the seller. For example, hotels and resorts often pay commissions months after a sale is made, so the parties may agree that, when the commission arrives, the buyer must remit it to the seller.

The problem is that, in many cases, the buyer either does not make sufficient effort to collect those commissions or fails to correctly account for them when they arrive at the travel agency. To prevent such an outcome, consider raising the purchase price and letting the buyer keep everything that comes in after closing or, if you are a hands-on owner, get the right to track and collect the money after closing.

Even if you would prefer to exit the business right after the sale, you can probably avoid most of these problems by continuing to manage the business for a while after closing, so I recommend that you do so.

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