Selling a business is an art, and sometimes deals fall apart. Being aware of these common obstacles can ensure plain sailing.
Once you have located a buyer who appears keen to purchase your business, it’s tempting to believe that all the major hurdles have been overcome.
Thankfully, it’s often true, but there can be an unpleasant twist.
Why do deals fall apart? Uninitiated buyers and sellers may discover that navigating through the negotiation phase becomes such an emotionally charged process that any tentative deal soon starts to unravel.
Above all, this is a time for cool heads, a time for consulting widely and carefully weighing the options on the table (and their future implications), before clarifying your strategy and then acting decisively. There are many reasons why a potential deal might fall apart, but here are a few of most common ones you may encounter.
Lack of finance
When selling your business, it’s important to establish at an early stage that your potential buyer has pre-qualified access to adequate funding.
Whilst this may seem simple enough, you should carefully examine any evidence produced. It may be that bankers have confirmed they would be prepared to advance funds to purchase a pub – which would be no help at all if you were selling a taxi business!
You may even be faced with a ‘buyer’ hoping to close a deal before applying for any funds at all.
Top tip: Make it clear early in the discussion that you expect finance to be arranged early.
Why do deals fall apart? Skeletons unearthed via due diligence
Due diligence is thorough and will uncover any existing issues within a business – for instance, ongoing litigation, debts owed by and to a company, ageing equipment no longer fit for purpose and more.
Non-declaration of significant problems usually leaves a prospective buyer feeling misled and ready to pull out of a deal, or at least seizing the opportunity to submit a much-reduced offer.
Top tip: uncover your own skeletons before you list your business for sale. Be upfront with these once you’ve a Non Disclosure Agreement.
Why do deals fall apart? Unrealistic pricing expectations
Business brokers will always encourage sellers to be entirely realistic about how market conditions will influence the asking price of their enterprise.
The list price must also be supported by the financial records used to arrive at the company valuation.
Whilst hoping for a good price in return for years of hard work is natural, it is quite another thing to inflate the price tag to a level which the financial history cannot corroborate.
Well-informed buyers will usually be aware of roughly how much your business is worth, and unsubstantiated assertions of its supposed value will simply encourage them to look elsewhere for a more realistic option.
Top tip: seek an unbiased valuation on your business that removes your emotional involvement.
Why do deals fall apart? A personality mismatch
Many small businesses have been carefully built up over a lifetime at considerable personal cost.
It will often be in a potential buyer’s interests to be sensitive to the seller’s (reasonable) expectations as regards business continuity. A tactful, friendly approach, plus some small personal compromises, may be all that is needed to bridge the gap and close a deal by anticipating, and thus avoiding, potential confrontation and costly failure.
Why do deals fall apart? Deal fatigue
Experienced business brokers understand the need for all parties to remain focused on the proposed deal. When there is a lull and no activity seems to be taking place, this can be enough to bring about a change of heart, causing a buyer or seller to become disenchanted and pull out of the process.
In some senses, completing a merger or acquisition presents the same problems as straightforward buying and selling, plus a few additional headaches.
For instance, even the best due diligence cannot fully assess the impact of cultural differences which tend to surface when two organisations begin to integrate, or determine the barriers to change which the most skilful management teams may still struggle to overcome.
Top tip: keep in touch with the buyer, even if it’s to acknowledge receipt of an email.
These difficulties highlight the need to call upon experienced professional advice to guide you through this critical phase and give yourself every chance of securing that elusive deal closure.
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