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.
A Final Note Remember
these four 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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