Why Do Deals Fall Apart? - South Florida Business Broker Russell Cohen

Business Broker Russell Cohen

954-646-76511-800-BIZ-BROKER

Why Do Deals Fall Apart?

In many cases, the buyer and seller reach a tentative agreement on the sale of
the business, only to have it fall apart. There are reasons this happens, and,
once understood, many of the worst deal-smashers can be avoided. Understanding
is the key word. Both the buyer and the seller must develop an awareness of
what the sale involves–and such an awareness should include facing potential
problems before they swell into floodwaters and “sink” the sale.

What keeps a sale from closing successfully? 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, this does not
mean the problems will go away. They are bound to turn up later, usually sometime
after a tentative agreement has been reached. The buyer then gets cold feet–hardly
anyone in this situation 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 prime importance
that the business be fairly priced. Once that price has been established, the
documentation must support the seller’s claims so that buyers can see the “real” facts
for themselves.

Both the Buyer and the Seller Grow Impatient

During the course of the selling process, it’s easy–in the case of both parties–for
impatience to set in. Buyers continue to want increasing varieties and volumes
of information, and sellers grow weary of it all. Both sides need to understand
that the closing process takes time. 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. Most are not. A business broker is aware of most of the competent
outside professionals in a given business area, and these should be given strong
consideration in putting together the “team.” 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.

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 the 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. Therefore, 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 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 risk, a lot of hard work, and long intense hours. Sometimes this
is too much reality for a prospective buyer to handle.

And None of the Above

The situations detailed above are the main reasons why deals fall apart. However,
there can be problems beyond anyone’s control, such as Acts of God, and unforeseen
environmental problems. However, many potential deal-breakers can be handled
or dealt with prior to the marketing of the business, to help ensure that the
sale will close successfully.

A Final Note

Remember these three 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 good deal

PROUDLY PARTNERED WITH
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M & A Source • International Business Brokers Association (IBBA) • Business Brokers of Florida • FICPA • Better Business Bureau *Boca Raton Chamber of Commerce * Davie/Cooper City Chamber of Commerce * Society of Commercial Realtors* Independent Insurance Agents of Broward County* Network Professionals - South Florida Networking Group* 6 Degrees of Golf