I am helping a client deal with an approach from a prospective buyer, and I’ve been reminded just how dangerous assumptions can be.
My client doesn’t have a background or training in finance, so I’m acting as the translator, explaining language used by the buyers’ advisors in plain English.
In this case the shareholders are a management team of 5 and after the deal is done only three will stay. There’s an earn-out involved, and to my client it was obvious that only those members of the team who are staying would participate in the earn out.
All the shareholders have the same type of shares with the same rights.
The buyers’ expectation is to treat them all the same way – including the earn-out, even for those no longer part of the team once the deal is done.
My client assumed one thing – you could say it was common sense – but the buyer’s advisors assumed something completely different – and again for valid reasons.
The problem with assumptions is that they are sometimes so obvious to person making the assumption that they don’t even know they have made the assumption and are not aware of an alternative.
This can be damaging!
To avoid assumptions is largely a matter of communication. If you explain, in great detail, what it is that you expect or want to happen, and then listen carefully to the reply, you will stand a chance of minimising or avoiding assumptions.
I was arranging for some subscriptions to be paid by standing order, and I set out the standing order form with instructions on how to complete it. To me it was obvious that the person sending the money has to send it to their bank – but then I have done this before!
If I don’t include that step in my instructions, we will get many of these completed forms in the post.
That’s no good to us – the bank cannot follow instructions it does not have!
If there’s not enough detail, assumptions creep in. Make sure you are all on the same page with detailed instructions – especially for something new – and then listen well, looking out for assumptions!