Some business sales unravel because of the
seller, others because of the buyer and even more due to third parties. The
reasons are numerous—but most can be resolved
Like many negotiations in life,
business transactions require a willingness to consider the other party’s concerns.
If there is no sincere motivation on the part of both the buyer and seller of a
business the likelihood that it will fail increases dramatically. There are a
number of reasons why.
Sellers may be the cause…
Some sellers do not have a
reason to sell and are merely testing the waters to see if anyone would
purchase their business and at what price. Because they are not legitimately
interested in selling, they’re not willing to consider the buyer’s concerns or to
be flexible enough to overcome the many complexities involved in the
transaction.
Even when owners are motivated to sell, there can be
problems if they are unrealistic about the value of their business or don’t want
to offer seller financing. In either case, credible and legitimate buyers will
be lost instantaneously. Unfortunately, some business brokers add fuel to the
seller’s cause by sharing with them unreasonable expectations, often in an
effort to secure a large upfront non-refundable fee.
Some sellers fail to be
honest about their business or its situation. They will misrepresent the
financial condition of the business or may not disclose the real reason for
selling. Even if the error is not intentional, the sudden appearance of
inaccurate information can scare off the most sincere buyer.
If you are a seller:
- Be
open, honest and accurate about all things, both good and bad.
- Be
prepared with financial documents that are up-to-date and accurate.
- Be
ready to articulate your reason for selling. Be honest and hopefully not
urgent.
- Get
legal commitments in order, such as leases, permits, and contracts.
- Get
an objective, impersonal review of your business and its market value
Buyers may be the cause…
Buyers often exhibit many of
these same tendencies. They may have unrealistic expectations regarding the
price of a business. Or they may have an urgent “need” to get a business but
lack the courage to take the leap of faith necessary to go through with the acquisition.
Some buyers have experienced
a recent financial setback that impacts their ability to meet their financial obligation
as part of the deal. I faced this situation recently when a large deal fell
apart after the buyer was unexpectedly served with divorce papers.
If you are a buyer:
- Be
open and honest about your skills and competencies.
- Create
a personal financial statement and understand your current financial standing.
- Get
comfortable with the amount of investment you’re willing to make, and stay
within your financial risk tolerance.
- Share
your acquisition intentions with your personal stakeholders before you
start looking.
Third parties may be the cause…
Outside influences can also
hamper the successful transfer of a business. Landlords may become difficult to
deal with when it comes time to transfer a lease or grant a new one. This
happened this past summer when a landlord wanted to significantly alter a
longstanding lease of a buyer who wouldn’t stand for it.
Sometimes, both buyers and
sellers receive overly aggressive advice from outside advisors. Advisors should
always work toward the goal of putting the deal together, not erect roadblocks
to derail it. A couple of months ago, a large merger of two leading businesses
almost didn’t happen when days prior to closing, an innocent letter from a lawyer
almost broke the chemistry between the principals.
Accountants can also
influence a deal. For instance, rarely have I met a buyer’s accountant who
thought his client didn’t pay too much for a business. Conversely, you’d be
hard-pressed to find a seller’s accountant who felt their client sold their
business for enough money.
For your advisors to be
catalysts behind a successful deal, you should:
·
Ensure
your accountant has a history of working with both buyers and sellers; they
will need to see things from both perspectives.
·
Confirm
your lawyer has experience with business sales of a similar size and nature.
·
Understand
how your business broker will be able to manage confidentiality, negotiations
and both parties’ advisors.
·
Get
your advisors talking and working together.
There can be endless reasons for
why a business sale does not successfully close, most of which can be mitigated
with some thoughtful planning and understanding. Most importantly, they can all
be resolved when the parties at the table are motivated to execute a deal. Whether
you’re a buyer or seller, start managing these common issues before you get
involved in any negotiations and you’ll be on your way to an outcome all
parties are happy with.
Do you have a small business question
you would like answered about this article or others
Bill Sivell
is a Business Broker with VR Windsor
Inc., which sells
businesses to buyers across Canada and around the world. His 14-year career
includes diverse senior management positions in marketing, advertising, sales
management and operations management. He blogs about selling businesses at Maxbizvalue.blogspot.ca
Burying your personal expenses so
deep in your corporate statements will make it difficult to find for everyone….
including the bank and business buyers.
