What Makes a Business Sale Fall Through
Selling a business is a much more complicated transaction than most other types of sales, such as selling a home for example. There are far more variables at play, and it can often take several weeks or even months to find the right buyer and close the sale. Along the way, potential deals that start out looking very promising sometimes fail to materialize.
There are numerous reasons that a business sale can fall through, and these reasons fall into four general categories:
The Seller: Sometimes, sellers hold up a deal because of the way they handle the process. Some common issues that come up with the seller include:
- Unrealistic Expectations: Business owners naturally have a lot invested emotionally in the businesses they have built. In some cases, this can cloud their judgment and cause them to place an unrealistic valuation on the business. This can seriously limit the number of potential buyers that are interested, and it can also make them less flexible than they should be during negotiations.
- Lack of Transparency: Sellers are not always totally honest about their business, and they fail to disclose various issues to perspective buyers. For example, a seller may hide the fact that their sales are declining, or that competition has increased significantly in their marketplace. A buyer who performs thorough due diligence will usually reveals most issues, which may prompt them to back out of the deal.
- Moving the Goalposts: After beginning the sales process, a seller might decide to ask for more money or otherwise try to alter the terms and conditions of the deal. This may be an indication that the seller is not all that motivated to part with the business and the first place. Whatever the case, trying to change the terms of the sale can sometimes cause the deal to fall through.
The Buyer: Buyers may hold up a deal for many of the same reasons as the seller. For example, a perspective buyer may express strong interest in the business at first, but as they get further along in the process, they may start to get cold feet and ask for additional terms and conditions. This could mean that they really don’t want to go through with the purchase, or maybe their spouse or someone close to them is opposed to the purchase and influences them toward backing out.
Outside Parties: As was touched on in the last point, outside forces might cause a business deal to fall through. It could be a close family member trying to talk them out of it, or it could be an all overly aggressive advisor, such as an attorney, who insists on putting up unnecessary roadblocks. It could also be a third party, such as a landlord who does not want to transfer the commercial lease to the new buyer or grant them a new lease without jumping through unreasonable hoops.
Bad Luck: Sometimes, outside problems may arise that are beyond the control of either the buyer or the seller. For example, a downturn in the economy that affects the profitability of the business for sale or new government regulations that make it more difficult to operate in that particular industry.
How Sellers Increase the Chances of Closing the Deal: While it is not always possible to prevent a business sale from falling through, there are some things sellers can do to mitigate this situation as much as possible. Sellers need to be a realistic about what their business is worth and take steps to address any potential issues ahead of time. The best way to handle this is to work with an experienced business intermediary. Business brokers are well aware of the various ways that a deal can fall apart. They have extensive experience resolving these types of issues, and they can help sellers successfully navigate the complexities of the sales process.