There are four main categories of things that can contribute to a wrecked deal: those caused by the seller, those caused by the buyer, those that just happen (“acts of fate”), and those caused by third parties.
In this blog post, we’ll examine each of these categories in turn. In this way, you can be aware of the potential pitfalls and take steps to avoid them.
The Seller
- The seller doesn’t have a strong enough reason for wanting to sell. Without a real commitment to the process, it’s very difficult to overcome the many obstacles and complexities involved in finalizing a sale. If you’re not sure that you really want to sell, it’s probably best to hold off until you’re certain. Otherwise, you risk wasting a lot of time and effort for nothing.
- The seller is not being hungry enough to push for the sale, the business is not attractive enough, or the seller is asking for too much money. Ultimately, if a seller is not willing to negotiate or budge on their asking price, the chances of selling their business diminish greatly.
- You may be sincere about wanting to sell, but if the marketplace doesn’t value your business as much as you do, it’s likely to fall through. Remember that the demand for your business may not be high in some cases. You should be realistic about what you can expect to get for it. Our business valuation process gives you a true 3rd party look at your business value.
- If you’re hiding the fact that new competition is entering the market, that the business has serious problems, or some other reason the business is not salable under existing circumstances, you may not be able to sell your business. Even worse, if you don’t disclose that there is more than one owner and that they are not all in agreement about selling the business, the sale may fall through. Be upfront with potential buyers about your business to increase the chances of a successful sale.
- Another common issue is when the seller decides to wait until a buyer is found and then checks with their outside advisors about the tax and/or legal consequences. It’s important to deal with these complications ahead of time, as altering the terms of the deal at this point is likely to cause the buyer to back out. Nobody likes changes, after all!
The Buyer
- The buyer may not have an urgent need or strong desire to take on a new business. This could be because they lack the courage to make the necessary changes, or because they’re not fully committed to the idea.
- Many buyers have unrealistic expectations about the price they will need to pay. Many are also uneducated about the nature of small businesses in general, which can lead to sales falling through.
- Buyers may not be willing to put in the hours or do the type of work necessary to operate a business successfully. This can be a huge turnoff for potential buyers if the business model and workload are not properly explained early in the buying process. It can ultimately lead to the sale of the business falling through.
- Be aware of the factors that can lead to the sale of your business falling through. One such factor is the influence of others who may be opposed to the purchase. Some people simply don’t understand the need to be one’s own boss. This can lead them to discourage others from making a purchase. Additionally, buyers can be influenced by others who are opposed to the purchase of a business.
Acts of Fate
There are several situations that can cause a business sale to fall through, even if both the buyer and seller are committed to the deal. These “acts of fate” can include:
- Unmentioned or unknown problems with the business, such as environmental issues or financial deficiencies, that are discovered during the buyer’s investigation
- The inability of the seller to satisfactorily substantiate the business’s earnings
- Unknown problems with federal, state, or local governmental agencies that arise during the course of the sale
Third Parties
- Landlords may become difficult about transferring the lease or granting a new one. Your employees may be concerned about their jobs and benefits. There are tax implications and paperwork to consider.
- Third parties can cause a deal to fall through. Most commonly, this is due to overly-aggressive advice from attorneys. In their zeal to represent their clients, attorneys can forget that the goal is to put the deal together. In some cases, they erect so many roadblocks that the deal can only fall apart.
Business sales can fall through for a variety of reasons. These problems could have been avoided if the parties involved had been aware of potential difficulties and took steps to address them early on in the process. However, there are some situations that cannot be resolved without causing one or both parties to lose out. These are typically the exception, rather than the rule. With careful planning and communication, most business sales can go through without a hitch.
We are experienced in resolving issues before a business goes onto the market or before a buyer is introduced, let Gulf Coast Business Broker be can be a valuable resource in ensuring a successful sale. Of course, business brokers cannot provide legal advice, but they are familiar with the intricate details of business sales. They also usually have a network of local attorneys who specialize in these transactions. It can save you time and money in the long run.