Why Sales of Businesses Fall Apart

There are three main players involved in the sale of a business, plus one other factor - that could be termed "the hand of fate." The players directly involved are: the sellers, the buyers and the third parties. Each one of these has an important role in the successful closing of the sale of a privately held business. Conversely, each one can directly contribute to the deal not closing at all. Although in many cases there can be a combination of two or more, usually one side is the main contributor, or, at least, starts the ball rolling uphill. Here are the primary reasons why deals end up not closing and then how the "fickle hand of fate" can also have a negative impact on the deal.

Sellers

• Many times, sellers are not really committed to selling the business. Although it may have sounded like a good idea at the time, or they may suddenly realize that they won't have a thing to do if it sells, or they discover that the marketplace will not pay them what they think their business is worth. A seller who is committed to selling will be willing to overcome the complexities necessary for closing the sale.

• In some cases, a seller may not reveal a problem, or may not think it is not important enough to reveal. Buyers, like most people, do not like surprises. Sellers must understand that only by openly discussing all issues about the business can a sale close successfully.

• Sellers should consult their outside advisors prior to putting their business on the market.

• Sellers must understand that their business is only worth what someone is willing to pay for it. Also, a seller who is willing to offer reasonable terms to a buyer almost always will receive a higher price than the seller.

Buyers

• Like their counterparts - the sellers - buyers must also be motivated to act. Without the need or desire to own their own business, the sale will not close. This need and desire must be coupled with the courage to "make the leap of faith" necessary to be a business owner. There are no guarantees.

• Buyers must have realistic expectations of just what their money will buy - so to speak. A buyer who has $50,000 to invest in a business can't expect to buy a business to that has $250,000 in profits. He or she may be able to increase the business to this level, but one can't expect to buy it with a minimum down payment. A rough rule of thumb is that a buyer can hope to buy a business with a bottom line equivalent to the amount of down payment available.

• Buyers must be willing to work hard and understand they are usually the proverbial "chief cook and bottle washers." Long hours and long days are generally necessary to succeed in operating one's own business. However, there is nothing like being one's own boss.

• Buyers should listen to their advisors, but understand that only they can make the decisions.

Third Parties

• Advisors may be overly aggressive and try to make decisions for both buyers and sellers. Assuming that the buyer and seller are in agreement, the role of the advisor or professional is to make the deal happen unless it is illegal to do so. Outside advisors may, with all good intentions, throw up so many roadblocks that the deal goes sour.

• Landlords can also be stumbling blocks. They are usually the only party to a business sale that gains nothing from it. The lessor is asked to draw a new lease or assign an existing one. It is best if the landlord or his or her representatives are consulted prior to the business going on the market. This way there are no surprises once a qualified buyer is found.

Acts of Fate

Situations can develop that are the fault of no one, but the "fickle hand of fate" can occur causing a sale to fall apart. Here are a just a few instances:

• The proverbial "truck" hits the buyer. This has happened, as has the fire that destroys the business a day before the sale is to close. Such acts are rare, but these acts of fate do happen.

• An unsuspected environmental issue may arise that - best case - merely postpones the closing, but - worst case - wreaks the deal.

• The buyer or seller may have misrepresented something along the way that comes back to force the sale not to close. This may have been unintentional, but the damage is done. It is important that everyone is open about every phase of the transaction.

Business brokers have seen almost everything that can cause the sale of a business to fall apart. They are aware of the problems that can cause a sale not to close and can usually resolve them before they can impact the sale. Business brokers have been through the selling process and have worked with outside advisors and professionals. They are familiar with all of the intricacies of the business transaction. Most business sales can have happy endings if any potential problems or difficulties are handled and resolved at the appropriate time.

Copyright 2007 Business Brokerage Press