Why Business Sales Fall Apart ...
Updated: Mar 3, 2021
There can be many unknown or unplanned causes why the sale of a business doesn't close successfully. Sometimes business sales fall through unknowingly by the seller or the buyer, or sometimes caused by third parties. Some of the common cause that lead to the wrecked deal are highlighted below -
1. In some instances, the seller doesn't have a strong reason to sell the business. Without a strong reason for selling, he or she has doesn't have the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process.
2. Some sellers are merely testing the waters. As mentioned above, they are not at that "hungry" stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to buy their business at the price they would like to receive.
3. Many sellers are unrealistic about the price they want for their business. They may be sincere about wanting to sell, but they are unable to be realistic about how the marketplace will value the business. The demand for their business may not be there or sometimes they fail to value the business with buyer's viewpoint.
4. Some sellers fail to be honest about their business or its situation. They may be hiding the fact that new competition is entering the market, that the business has serious problems or some other reason the business is not saleable under existing circumstances. They fail to understand that eventually any prudent buyer will do their thorough due diligence prior to closing the transaction.
5. Sometimes sellers don't understand that almost all businesses are seller-financed. Buyers have to be able to make the payments while still making a living from the business. If the business cannot offer this necessity, no one will buy it.
1. The buyer may not have an urgent need or a strong desire to go into business. In many cases the buyer may begin with positive intentions, but then doesn't have the courage to make "the leap of faith" necessary to go through with the sale.
2 Some buyers, like sellers, have very unrealistic expectations regarding the price of businesses. They are also uneducated about the nature of small business in general.
3. Many buyers are not willing to put in the hours or do the type of work necessary to operate a business successfully.
4. Buyers can be influenced by others who are opposed to the purchase of a business. Many people don't or can't understand the need to be "your own boss."
Acts of Fate
These are the situations that "just happen," causing deals to fall through. Even considering the strong hand of fate, many of these situations could have been prevented.
1. A buyer's investigation reveals some unmentioned or unknown problem, such as an environmental situation. Or, perhaps there are financial deficiencies discovered by the buyer. Unfortunately, these should have been on the table from the beginning of the selling process.
2. The seller may not be able to substantiate, at least to the buyer's satisfaction, the earnings of the business.
3. Problems may arise, unknown to both the seller and the buyer, with federal, provincial, or local governmental agencies.
4. The Seller may have concentration issues with their clients and may loose a significant source of revenue.
1. Landlords may become difficult about transferring the lease or granting a new one.
2. Buyers and/or sellers may receive overly-aggressive advice from outside advisors. Sometime these advisors, in their zeal to represent their clients, forget that the goal is to put the deal together. In some cases, they erect so many roadblocks that the deal can only fall apart.
Most of the problems outlined here could have been resolved before the selling process has advanced too far. There are also some problems that could not have been avoided...people do sometimes enter situations with the best of intentions only to find out that this is not the right answer for them after all. These are the exceptions, however. Most business sales can have happy endings if potential difficulties are handled at the appropriate time.
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