Today is April Fool's Day and, while I would like to make up an outrageous story that might seem like it is real, I've decided to tell a true story that might seem not real.
An accountant's client wanted to sell her business to a key employee. However, the client needed the money quickly, and the employee did not have much savings. The client asked her accountant to take a look and work something out. The accountant met with the client and the key employee, heard them out, and then worked up some numbers.
The accountant came up with a plan where the key employee could do a leveraged buyout where they would borrow 60% of the sale price from a bank and the client would retain an unsecured note for 40% of the price. As collateral, the bank would receive all of the business' assets. The 40% would be paid over 12 years with interest fixed at a 3% higher rate than the bank's initial interest rate with self-liquidating monthly payments. I won't bore you with all of the details, but it was a workable plan.
The key employee had a reasonable sized 401(k) account and some equity in his residence. The bank knew this, and perhaps because of this, was willing to provide the financing, but wanted the key employee and his spouse to personally guarantee the loan. This meant that if there was a default of any kind, he and his wife would probably need to file for personal bankruptcy and would lose what they had. This was the "skin in the game" the bank was comfortable with.
The key employee was willing to do this, and actually was excited about owning the business, but his wife balked at it. She adamantly refused to cosign the guarantee. The client spoke to her, and so did the accountant. Nothing they could say could budge her. I hate to think about the private discussions between the key employee and his wife, but she would not do it.
After a short cooling off period, the client said she would have to start a process to market her business. The accountant asked for a week's delay and met with the key employee and his wife and, when she was assured a deal could not be made, she asked if the key employee would be interested in being a 20% owner with the same deal, without putting in any funds and without having to guarantee anything. The accountant also said that the 80% owner would be an absentee owner not involved with running the company on a daily basis but would insist on tight financial controls and accountability. The key employee and his wife said that would be great but wanted a day to think about it. They called the next day and said that if the accountant could work that out, they would be appreciative and grateful for the opportunity.
The closing took place three weeks later. The key employee got his 20% and the accountant got 80% ownership when she signed the personal guarantee.
Later that day, the key employee told his wife what happened. His wife immediately called the accountant and yelled, "You bastard! You stole the business from my husband!"
A takeaway here is that these deals happen all the time, and what the accountant has to be clear about is that they are not acting in their own interest or doing anything to inhibit the deal. Also, it is usual for the people who do the most to thwart the deal to feel the most aggrieved.
Enjoy the day!
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