6 Common Reasons Why Your Business Sale Could Collapse
As a business owner, you know that selling your business involves much more than simply finding a suitable buyer– there are plenty of potential pitfalls along the way. From buyers who aren’t qualified to unexpected costly repairs, an unprepared seller could experience all sorts of hiccups in their attempt to successfully close the sale. It’s critical then, that you take the necessary steps to ensure you’ve done everything possible to get yourself ahead of any problems and increase your chance for a successful transaction. To help alert you to some conditions that might be lurking under the surface, here are 6 common reasons why your business sale could collapse if not handled properly.
1. Due Diligence Mistakes
When it comes to buying or selling a business, due diligence is absolutely essential. Failing to uncover all the necessary information could cause major problems down the line. Unfortunately, this is an all-too-common mistake made by business owners. Perhaps they don’t realize just how important it is to disclose everything, or maybe they’re hoping to keep some less-than-flattering details under wraps. Whatever the case may be, failure to disclose important information could ultimately lead to a collapsed deal and a host of legal issues. For example, if a business owner fails to mention a crucial service contract that can’t be transferred to a new buyer without serious scrutiny, the entire sale could be in jeopardy. It just goes to show that due diligence is absolutely crucial in any business transaction.
2. The Buyer Makes Too Many Demands
One of the most frustrating reasons a deal can fall through is when the buyer makes too many demands. This can feel particularly disheartening when you thought you had a good deal on the table. But when a potential buyer is unreasonable and unwilling to compromise, it’s important to take a step back and reassess the situation. In some cases, these demands may be a negotiating tactic, and finding common ground could still be possible. However, if it becomes clear that the buyer will not budge on their demands, it’s important to recognize that the sale may not proceed. It’s never easy to walk away from a potential sale, but sometimes it’s the right decision to find the best deal that works for your situation.
3. Other Parties
Even when both parties are eager to close a sale, other parties can become roadblocks that prevent a smooth transaction. Landlords, vendors, and attorneys are just a few examples of those who can significantly impact the outcome. It can be very irritating when a commercial lease hinges on unreasonable requests from a landlord, or a franchisor scrutinizes a buyer so intensely that they find a reason to reject the ownership transfer. Another hurdle can come from even the most well-meaning family members who become overly aggressive advisors, unknowingly inserting themselves into the deal and creating unnecessary hurdles. Sometimes, there’s no reasoning with an irrational third party. They’re the “deal killers”, experts at killing deals and dreams with a flair that even Freddy Krueger would admire. Despite these challenges, keeping a calm, level-headed approach can help to navigate most obstacles presented by third parties and ultimately reach a successful closing.
4. Changes in the Structure of the Deal
There’s nothing worse than realizing the goalposts have moved when it comes to closing a deal. This scenario can cause immense frustration for all parties involved and have disastrous consequences for the agreement. After all, everyone involved has invested time, energy, and resources into getting the deal to this point. So when one party decides to ask for more money or alter the terms and conditions, it’s only natural to feel blindsided. Of course, if there were any surprises discovered during due diligence, then some changes might be necessary. But if everything about the business was fully disclosed beforehand, then any change to the deal structure is likely to cause significant harm. So remember, when it comes to the sales process, it’s essential to ensure that both parties keep their promises and follow through on any agreed-upon terms and conditions.
5. A Lack of Communication Between Both Parties
Nearly everything previously mentioned could be attributed to a lack of communication. Effective communication is the foundation of any successful business transaction. Without it, deals can easily unravel. It’s crucial to identify early warning signs of communication breakdown during the deal-making process. For instance, a seller’s failure to provide requested documents promptly or a buyer’s failure to conduct thorough due diligence by asking pertinent questions are clear indications of communication gaps. To ensure a smooth and fruitful business deal, both parties must maintain open and effective communication throughout the entire process.
6. Cold Feet
It is not uncommon for business owners to experience cold feet when it comes to selling their business. After all, selling a business means letting go of something that often required immense effort, countless sleepless nights, and personal sacrifices to build. The emotional attachment to a business can be so strong that it may cause a seller to back-pedal away from the dealmaking table, simply because they are not yet ready to move on. However, this can be easily avoided by preparing in advance and having a well-defined plan for the post-transaction period. Whether it involves investing in a new venture, relocating to a different place, or dedicating more time to a hobby, having a clear direction will alleviate any doubts or cold feet.
To sum up, there are various factors that can cause business deals to fall apart, often leading business owners to start fresh with potential buyers. These reasons may include mistakes in due diligence, excessive demands from the buyer, interference from others, changes in deal structure, lack of communication between parties, or simply cold feet. Even when business owners follow all the right steps and things seem to be going smoothly, deals can still collapse at the last minute. The key is to make sure that everything under your control is executed properly, creating optimal conditions for a successful outcome. If you’re planning to sell your business soon, just remember that V-AID is always here to guide you through every step of the process, ensuring you have the best chance of maximizing your business’s value without the added stress of doing it alone. We are passionate about helping business owners exit on their own terms, let our team of experienced business brokers in Dallas help you achieve a successful business exit.