Selling any business can be complicated. Finding the right buyer is one hurdle that must be overcome. However, even once the right buyer has been found, there are still many reasons why a deal can collapse. 

Unpredicted Events 

It is important to realize that you can do everything perfectly and “acts of fate” can still intervene and impede the success of your deal. For example, one issue is that you might not be able to satisfy the buyer in regards to demonstrating the earnings of the business. 

A second issue is that during the sales process problems may arise with federal, state and/or local government bodies and agencies. Many of these problems may be quite difficult to predict in advance. A third issue is that the buyer’s investigation ultimately reveals some problem regarding the business that was previously unknown. 

Simply stated, a seller cannot guard against every single possible unforeseen act of fate. The best any seller can do is look for potential problems and try to remedy them in advance. Working with a business broker or M&A advisor can be an excellent way to identify all types of business problems and adjust accordingly.

Buyer Issues

Another major reason that deals can fall through are issues with the buyer. Many sellers are just “testing the waters” or lack the commitment and resolve to see the sales process through, which is often much more complicated than many sellers realize. This issue marks the importance of working with an experienced business broker or M&A advisor who hopefully can weed out these uncommitted buyers in the beginning. 

Often buyers will fail to be honest about their situation or how capable they are of buying the business. Business brokers are experts at assessing the potential of interested buyers, and that means they can typically save sellers a great deal of time and aggravation. But even with the best brokerage professionals on your side, it’s important to realize that buyers can still be unpredictable. 

Third-Party Interference 

A particular source of deal killing frustration can be that buyers are influenced by third-parties who are opposed to the purchasing of the business, for a variety of reasons, and will work to kill the deal regardless of its merits. Everyone from landlords who may not want to transfer a lease or grant a new one to outside business consultants, such as attorneys, may all intentionally or unintentionally create a range of problems that interfere with the success of the sale.

There are many pitfalls that can derail the successful sale of a business. Identifying those kinds of issues far in advance is one way to dramatically boost your chances of a successful sale. Working with an experienced business broker or M&A advisor can help to dramatically increase the odds of finding the right buyer for your business.

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It takes a lot of work to buy or sell a business. When a once promising deal is not successful, this can be due to a wide array of reasons. However, understanding the reasons why a deal can fall apart in advance can serve to dramatically increase your odds of success.

Some of the reasons that deals fall apart are reasonable, while other reasons, to be blunt, are unreasonable. Let’s take a look at four common reasons that are seen in the world of business brokerage. 

Reason 1- Financial Issues on the Buyer’s End 

One of the most common reasons that deals fall apart is that buyers simply can’t find the needed financing. Working with a business broker or M&A advisor is a way to safeguard against this outcome, as an experienced brokerage professional knows how to pre-screen prospective buyers to increase the odds of success from a financial standpoint.

Reason 2 – Lack of Financials on the Seller’s End 

A second reason that deals fall apart is that the seller doesn’t have all of their financials in an up-to-date form. Sellers must constantly strive to put themselves in the shoes of a prospective buyer. Virtually no serious buyer would move forward with a deal without having a clear picture of the finances of the business. This is an issue that can be circumvented with the right level of planning and preparation. 

Reason 3 – Last Minute Surprises

A third common reason that deals fall apart occurs when a surprise happens at the last minute. It is almost impossible to safeguard against every possible surprise, however, an experienced business broker knows how to navigate the due diligence process so as to dramatically reduce the chances of unexpected problems. Again, brokerage professionals have tried and tested techniques which help reduce the chances of these unwanted surprises. 

Reason 4 –Business Issues Left Unaddressed 

Preparing a business to be sold isn’t something that happens overnight. Sellers should expect that any serious buyer will do more than “kick the tires,” but will instead have their experts go over every aspect of the business. Administrative, environmental, or legal issues that have not been properly addressed can serve to raise many red flags. Needless to say, this can scare prospective buyers away from a business. There is no replacement for proper preparation and meticulous due diligence months or preferably years in advance.

At the end of the day, there are many reasons that a deal can fall apart. Buyers and sellers simply can’t safeguard against them all. However, an experienced business broker or M&A advisor can often see problems on the horizon. Plus, when you work with an experienced professional, it can help keep emotions in check. It’s important to keep all parties involved focused on success. With the right team in place, it is possible to dramatically decrease the chances of surprise events ruining what would otherwise be a good deal.

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There is no underestimating the importance of negotiation when you are buying or selling a business. Let’s take a look at some of the most often used strategies and our recommendations. 

The Direct Approach

One approach in negotiations is what we often refer to as the “take it or leave it” strategy. In this scenario, the buyer makes an offer, and the seller then counters that offer. There is little negotiation work necessary, as both parties are direct and simple about the numbers and terms they propose. The drawback to this approach, however, is that when it doesn’t work, there is little to no recourse. When this “direct approach” offer isn’t accepted by one of the parties, there is little opportunity for flexibility on either side. Therefore, the direct approach can be somewhat of a risk.

Focusing on Influential Details

There are typically certain aspects of a deal where a buyer or seller is unwilling to compromise. Sometimes this aspect isn’t even financial in nature. It could be anything from the desire to move the business to a new site, to employment of a friend or relative. Once the negotiations embrace and include these non-negotiables, it can help expedite a successful deal. 

Splitting the Difference

A common approach that is seen when buying or selling businesses is that one side offers to split the difference. Unlike the direct approach, there is a good deal of flexibility here. When one party shows that they are open to split the difference, it is often seen as a way to keep negotiations going. Another point in favor of this approach is that communication continues. Obviously when one or both sides stop talking, the deal has not been successful. 

Third Party Involvement 

When it comes to finding solutions and resolutions, having a third party involved is tremendously beneficial. When you bring in a business broker or M&A advisor, that individual can then help facilitate the negotiated solutions. This third party is seen as skilled, yet also more of an impartial party. Business brokers and M&A advisors also have many years of experience encouraging buyers and sellers to understand and work with one another. 

Your brokerage professional can help both parties agree to a fair price while handling the aspects of all the small details involved in buying and selling businesses. Negotiations almost always benefit from having a professional involved, as they bring a different, and much needed, perspective to the table. 

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Experts recommend that sellers prepare years before they plan to put their businesses up for sale, and there are many good reasons why they make this recommendation. A wide range of factors can interfere with the sale of a business, ranging from life changes like divorce and burnout to a new competitor moving into town. Preparing to sell your business in advance will help prepare you for the day you need to sell, whenever that day may be. Now, let’s take a look at a few of the surprises that sellers may face when selling their company.

Time Commitments

Topping the list of surprises that sellers often face is the time commitment involved. As almost any business owner will tell you, it takes a tremendous amount of time and effort just to run a business. Adding the additional variable of putting a business up for sale can be a real strain on a business owner’s time and resources. The idea that one can simply put a business up for sale and “the rest will take care of itself” is very rarely the case. 

Most businesses take many months or even years to sell even with considerable effort put into the process by both the business owner and brokerage professionals. Prospective buyers can take up a considerable amount of time to deal with, and this is one of the many reasons it is important to work with a business broker or M&A advisor. A competent brokerage professional has expertise in determining if a potential buyer is worth the time, effort and money it will cost by you and licensed Deal Team professionals such as attorneys and CPAs – vetting a buyer’s ability to close on the sale of your business – saving you a great deal of time and aggravation.

Documentary Requirements 

Sellers are often unaware of just how much documentation must be compiled for the Confidential Business Review (CBR) alone. However, the CBR is key in the selling process. If you’re selling your business in the near future, be prepared to compile, create and review a lot of documents. 

Shared Decision Making

Of course, there are many other variables that must be considered when a seller makes the decision to sell their business. Minority stockholders or family members with an interest in the business must be taken into consideration. 

Typically, sellers are accustomed to handling most of the key decisions regarding their business. This approach might work for running a business, but it can be quite challenging when it comes time to sell. Everyone from members of the management team to lawyers, accountants, and, of course, business brokers or M&A advisors, must be involved in the process. 

Owners simply cannot realistically handle every aspect of getting a business ready to be sold. Usually, the requirements of the sale process are too diverse and complex to be handled effectively by one individual.

While the above-mentioned surprises are often the most common, a wide range of other factors can often be unexpected. These factors range from sellers accidentally decreasing the value of their businesses due to failing to maintain normal business operations during the sale which can decrease the value of the business to confidentiality leaks. 

Selling a business is a complex process. Many business owners feel that since they are accustomed to the complexities of operating a business that they can handle the complexities of selling a business. The reality of the situation is quite different. 

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A key part of the American Dream is the notion of being financially independent and controlling one’s own fate. While times have changed, the idea of the American Dream is alive and well. Entrepreneurs have long realized that one of the quickest ways of achieving this dream is to own a successful business. 

The majority of today’s buyers are well educated and come from the corporate world; however, they are typically not versed in the business buying process. Since these buyers are coming from the corporate world, they are fact-driven, meaning that they want to see the numbers and will pay attention to details both large and small. You can expect these buyers to want to see all necessary supporting documents. They will want to verify everything themselves. Additionally, you can expect them to employ many outside advisors. Summed up, today’s buyer is not an easy sale.

Another key fact about the modern buyer is that they are often what can best be termed as “event driven.” These are buyers that not only want to control their own destiny, but also need to buy a business for some other practical reason. For example, perhaps their current job was downsized or they were transferred to a location where they did not want to move. It is common that people don’t have the courage to quit their current job and say goodbye to the safety of a steady paycheck in favor of a leap into the unknown. It is quite common that there needs to be an event to stimulate the change.

Business brokers and M&A advisors seek to protect their clients while moving them closer to their goals. One of the ways that they can achieve that is by working with only serious and qualified buyers. The process of matching the right buyer to the seller involves asking a series of important questions such as the following:

• Why is the person considering buying a business? 
• How long have they been looking? 
• What kind of business are they seeking? 
• How much money do they have available? 
• Have they ever owned a business before?

Every business is different. It should come as no surprise that each buyer out there has a different story and different goals. A one-size-fits-all approach to buying and selling a business simply doesn’t provide optimal results. Working with a qualified business brokerage professional is the easiest way for a seller to not only find the right buyer, but do so with the least stress possible.

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Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.

This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business. 

Signs of Lack of Interest

There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested. 

Inexperienced Buyers

What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate. 

Withholding Information 

There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed. 

When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track. 

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Many buyers and sellers are not aware of the complexities that go into appraisals for businesses. To get the most accurate results, a business needs to be looked at from a variety of angles. When completing a business valuation, we look at everything from comparable businesses to EBITDA. There are a lot of nuances involved that are customized depending on the business at hand. Without looking at a wide range of factors, you could accidentally get less for your business than what it’s really worth. 

What Will Be Important for Your Buyer?

When you’re selling a business, part of the fair market value of your business relates to benefits that your buyer will receive. Obviously, your valuation will include factors such as market share and profitability that a buyer will enjoy. But there are also less obvious factors. For example, is there potential for the business to expand beyond its current niche? What is the competition like? What about access to customers? 

Current Trends 

Also brought into consideration should be trends that will impact the business. These trends could be everything from trends in technology to economic or social changes. In some cases, business trends might make a business much more valuable. For example, due to the recent pandemic and fast adaptation of online conferences, companies that integrated video conferencing had a major edge over those that did not. 

When business owners are aware of emerging market trends, it allows them to develop new offerings to meet current demand. In turn, this can boost business growth and increase a business valuation. 

The Workforce

Recent workforce issues have definitely impacted the value of businesses across the board. If you have a strong, highly trained and dependable workforce, it will help to increase the value of your business. If your staff members are customer-facing, positive customer experiences will drive revenue growth. Further, buyers will feel more confident buying a business with a reliable roster of employees.  

There are many questions that will affect your buyer and those should be considered in the price you ultimately decide upon. The savviest business owners are always thinking about trends in society and how to work with them to strengthen the value of their business. They will also consider the decisions made by their competitors and how they impacted their businesses for better or worse. 

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If you own a family-owned business, you may feel as though there are more factors to consider when it’s time to sell. In this article, we’ll examine some of the best options that business owners can use. You’ll want to keep in mind that both internal and external strategies are available to you. Let’s take a closer look. 

3 Types of Internal Transactions 

One of the top options for selling a family-owned business is to simply transition the ownership of the business within the family. This is an often-exercised option for many reasons. For example, one of the benefits to this strategy is that selling a family-owned business to a relative will keep the business in the family. Oftentimes this decision best suits the emotional preferences of the owner. A major risk is that the family member will fail to operate the business successfully, and this point underscores the importance of only transferring ownership to a family member that is ready for the task.

A second option is what is known as the Employee Stock Ownership Plan (ESOP). ESOPs are often utilized in companies when selling to a third party could prove to be problematic or difficult. Architectural, construction and engineering companies are all good examples of businesses that can be difficult to sell to third parties.

Choosing to hire a CEO who manages the owners exit strategy is a third option for business owners to consider when selling. This is a time-tested strategy that many business owners have appreciated. Using this CEO strategy allows the owner to essentially retire and live off of company dividends while at the same time delaying the sale of the company for years.

External Transactions to Consider

The previous three examples specifically focused on internal transactions. Now, we’ll turn our attention to external transactions, as there are several viable external transactions that work for family-owned businesses looking to sell. 

A management buy-out or MBO, is an option that shouldn’t be overlooked. Selling to key employees with the company has many pros, for example, key employees understand the business as well as its current and future challenges and potential.  An MBO does have negative aspects to consider such as the fact that owners typically don’t receive the highest possible asking price as they have to provide financing.

A second external transaction for a family-owned business is an outright sale to a third party. One pro of a third-party sale is that an all-cash closing is possible and after the transaction is settled, the owner is free of the business. A potential downside of a third-party sale is that the sale process could be lengthy.

A third option for family-owned businesses to consider is an initial public offering (IPO). Companies with revenues of $100+ million are seen as a potential candidate for IPOs. An IPO can receive a high valuation; however, it is important to note that management will need to remain with the company.

Business brokers and M&A advisors are experts in helping family-owned businesses chart the best path forward. No two family-owned businesses are the same. An experienced brokerage professional can evaluate your business and help guide you towards the sale option that makes the most sense for your business and your personal situation.

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