Why Do Deals Fall Apart?
In many cases, the buyer and seller reach a tentative agreement
on the sale of the business, only to have it fall apart. There are
reasons this happens, and, once understood, many of the worst deal-smashers
can be avoided. Understanding is the key word. Both the buyer and
the seller must develop an awareness of what the sale involves--and
such an awareness should include facing potential problems before
they swell into floodwaters and "sink" the sale.
What keeps a sale from closing
successfully?
In a survey of business brokers across the United States, similar
reasons were cited so often that a pattern of causality began to
emerge. The following is a compilation of situations and factors
affecting the sale of a business.
The Seller Fails To Reveal
Problems
When a seller is not up-front about problems of the business, this
does not mean the problems will go away. They are bound to turn
up later, usually sometime after a tentative agreement has been
reached. The buyer then gets cold feet--hardly anyone in this situation
likes surprises--and the deal promptly falls apart. Even though
this may seem a tall order, sellers must be as open about the minuses
of their business as they are about the pluses. Again and again,
business brokers surveyed said: "We can handle most problems
. . . if we know about them at the start of the selling process.
The Buyer Has Second Thoughts
About the Price
In some cases, the buyer agrees on a price, only to discover that
the business will not, in his or her opinion, support that price.
Whether this "discovery" is based on gut reaction or a
second look at the figures, it impacts seriously on the transaction
at hand. The deal is in serious jeopardy when the seller wants more
than the buyer feels the business is worth. It is of prime importance
that the business be fairly priced. Once that price has been established,
the documentation must support the seller's claims so that buyers
can see the "real" facts for themselves.
Both the Buyer and the Seller
Grow Impatient
During the course of the selling process, it's easy--in the case
of both parties--for impatience to set in. Buyers continue to want
increasing varieties and volumes of information, and sellers grow
weary of it all. Both sides need to understand that the closing
process takes time. However, it shouldn't take so much time that
the deal is endangered. It is important that both parties, if they
are using outside professionals, should use only those knowledgeable
in the business closing process. Most are not. A business broker
is aware of most of the competent outside professionals in a given
business area, and these should be given strong consideration in
putting together the "team." Seller and buyer may be inclined
to use an attorney or accountant with whom they are familiar, but
these people may not have the experience to bring the sale to a
successful conclusion.
The Buyer and the Seller
Are Not (Never Were) in Agreement
How does this situation happen? Unfortunately, there are business
sale transactions wherein the buyer and the seller realize belatedly
that they have not been in agreement all along--they just thought
they were. Cases of communications failure are often fatal to the
successful closing. A professional business broker is skilled in
making sure that both sides know exactly what the deal entails,
and can reduce the chance that such misunderstandings will occur.
The Seller Doesn't Really
Want To Sell
In all too many instances, the seller does not really want to sell
the business. The idea had sounded so good at the outset, but now
that things have come down to the wire, the fire to sell has all
but gone out. Selling a business has many emotional ramifications;
a business often represents the seller's life work. Therefore, it
is key that prospective sellers make a firm decision to sell prior
to going to market with the business. If there are doubts, these
should quelled or resolved. Some sellers enter the marketplace just
to test the waters; to see if they could get their "price,"
should they ever get really serious. This type of seller is the
bane of business brokers and buyers alike. Business brokers generally
can tell when they encounter the casual (as opposed to serious)
category of seller. However, an inexperienced buyer may not recognize
the difference until it's too late. Most business brokers will agree
that a willing seller is a good seller.
Or...the Buyer Doesn't Really
Want To Buy
What's true for the mixed-emotion seller can be turned right around
and applied to the buyer as well. Buyers can enter the sale process
full of excitement and optimism, and then begin to drag their feet
as they draw closer to the "altar." This is especially
true today, with many displaced corporate executives entering the
market. Buying and owning a business is still the American dream--and
for many it becomes a profitable reality. However, the entrepreneurial
reality also includes risk, a lot of hard work, and long intense
hours. Sometimes this is too much reality for a prospective buyer
to handle.
And None of the Above
The situations detailed above are the main reasons why deals fall
apart. However, there can be problems beyond anyone's control, such
as Acts of God, and unforeseen environmental problems. However,
many potential deal-breakers can be handled or dealt with prior
to the marketing of the business, to help ensure that the sale will
close successfully.
:
Remember these three components in working toward the success
of the business sale:
- Good chemistry between the parties involved.
- A mutual understanding of the
agreement.
- A mutual understanding of the emotions of both buyer and seller.
- The belief,
on the part of both buyer and seller, that they are involved in a good deal.
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