Why do deals fall apart?

Why do deals fall apart?

by Steve

Deals that fall apart are a waste of your time, your families time and our time. That’s why we spend time upfront to make sure both parties understand the elements of the deal before proceeding to due diligence and a signed agreement.

What keeps a sale from closing successfully?  In a survey of business brokers throughout the United States, the same reasons were cited so often that a pattern clearly emerged.  The following is a list of factors we believe are critical to the sale of a business.

. LACK OF TRUST

Somewhere, somehow in the process, a bond of trust was broken, or was never established in the first place.  When the buyer doesn’t trust the seller, or the seller’s numbers, deals don’t happen.  An experienced, dedicated business broker can help significantly in building a bond of trust between seller and buyer – by encouraging full disclosure, by helping to review the numbers and by helping to assure that the facts – on both sides – are presented in a straightforward and forthright fashion.

 

. SELLER FAILS TO REVEAL PROBLEMS

Even though this may seem counter-intuitive, sellers must be as honest and open about the negatives affecting their business as they are about the positives.  Again and again, brokers surveyed said they are able to handle most problems if they made aware of them at the start of the selling process.

. BUYER HAS SECOND THOUGHTS ABOUT THE PRICE

It is crucially important that the business be  properly priced, and that the price is based on verifiable data (facts).  Once the price has been established, the documentation provided to prospective buyers must support the seller’s claims so there’s no second-guessing after the deal has been agreed upon.  Deals rarely happen if the buyer feels the business isn’t worth the price.

. BUYER AND SELLER BECOME IMPATIENT

During the course of selling a business, it’s not uncommon for both seller and buyer to become impatient.  Buyers want a steady stream of information, and sellers can start to grow weary of the whole process.  It’s important that both parties remember that closing a business takes time.  But it shouldn’t take so long that the deal is endangered.  Professional business brokers like Steve Ferber are not only fully versed in the closing process, but can recommend a team of other highly experienced professionals – attorneys, accountants, bookkeepers, etc. – who have the experience and expertise to bring the sale to a successful conclusion.  Selling your business is not something you should put in the hands of amateurs or those who lack the experience.

. BUYER AND SELLER ARE NOT (Never Were) IN AGREEMENT

Unfortunately, there are business sale transactions where both parties realize belatedly that they have not been in agreement all along…they just thought they were.  A professional business broker is skilled at making sure that both sides know exactly what the deal entails at all times, thus reducing the chances that deal-breaking misunderstandings can occur.

. SELLER DOESN’T REALLY WANT TO SELL

Selling a business has many emotional ramifications.  A business often represents the seller’s life, or at least his or her life’s work.  Some sellers enter the marketplace just to “test the waters,” and to see if they can get their “price” should they decide to get serious about selling.

This type of seller is a nuisance for business brokers and prospective buyers alike.  A professional business broker can usually tell whether a seller is casual or serious about selling. But an inexperienced buyer may not recognize the difference until it’s too late.  That’s why it’s crucial your broker makes sure that prospective sellers take a firm decision to sell before going to the market with their business.

. BUYER DOESN’T REALLY WANT TO BUY

What’s true for a seller with mixed emotions is also true for buyers.  Buyers can enter the sale process full of excitement and optimism, only to drag their feet as they get closer to a final deal.  This is especially true today, with many displaced corporate executives looking to buy a business.  But the great American dream of owning your own business is offset by the entrepreneurial reality of business risk, long hours and hard work.

Sometimes this is more “reality” than prospective buyers can handle.

. NONE OF THE ABOVE

The examples cited above are the primary reasons why business acquisition deals usually fall apart.  But there can always be problems beyond anyone’s control, such as Acts of God and unanticipated issues.  The good news is that many potential “deal-breakers” can be reconciled prior to marketing a company….to ensure that the process moves forward and the sale closes successful.

Steve Ferber


“When deals fall apart it’s typically due to bad planning and preparation. Sellers and Buyers are often uncomfortable bringing up key issues upfront – like whether the Buyer truly has the funds available to close a deal. That’s where an intermediary like our firm can help.”

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