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, both the buyer and the broker are in the dark. The issues turn up later, often in the due-diligence period after a tentative agreement has been reached. The buyer then gets cold feet, wondering what other issues have been hidden by the seller. No party to a business sale 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 paramount importance that the business is fairly priced at the time of listing and that the seller is able to stand on solid numbers and historical norms to support an asking price. Since many sales involve SBA bank financing, it is equally important that a business appraiser, retained by the lender, value the business at or perhaps just above the selling price.
In short, price should be more a reflection of math than emotion.
Both the Buyer and the Seller Grow Impatient
Selling is a process, not an event. Impatience often sets in, especially as Buyers continue to want increasing varieties and volumes of information, and sellers grow weary of it all.
Employing outside professionals tends to slow down the pace of a transaction, 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.
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. Close of Escrow dates are set in the original agreements for a reason, and best efforts by all parties should be exercised to hit those dates.
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 a 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.
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 be 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 some measure of risk, hard work, and long hours. Occasionally, this is too much reality for a prospective buyer to handle.
A Final Note
Remember these 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 fairly priced deal.
• Sellers who are committed to the post-close success of the buyer.