Many reasons why business sales fall apart
“Be kind, for everyone you meet is fighting a harder battle” — Plato
There are a number of reasons why a business doesn’t close escrow successfully. Some deals unravel because of the seller, some because of the buyer and even more unfortunately, some are caused by third parties. Regrettably, the reasons are numerous. Most can be resolved.
In regard to sellers, some 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 will not be willing to consider the buyer’s concerns or 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, credibility with legitimate buyers will be lost instantaneously. Unfortunately, some business brokers add fuel to their cost by sharing with them unreasonable expectations, often an effort to secure a large upfront nonrefundable fee.
Some sellers failed to be honest about their business for each situation. They will try to misrepresent the financial condition of the business or they 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.
Buyers can 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 sale. Sometimes, they may have experienced some recent financial setback that impacts their ability to meet her financial obligations as part of the deal. This is what happened last year when the potential buyer of a Reno business that had a cash flow in excess of $1.3 million lost a significant amount of money in the stock market.
Outside influences can also hamper the successful transfer of the business.
Landlords may become difficult to deal with when it comes time to transfer the lease or grant a new one. This past summer, there was a high-profile restaurant deal in Reno that fell apart because the landlord didn’t like the menu.
Sometimes, both buyers and sellers may receive overly aggressive advice for outside advisers. Advisers should always remember to work toward the goal of putting the deal together, not direct roadblocks to derail it. A few months ago, a large merger of two leading businesses in their industry almost didn’t happen when two hours prior to the close, an innocent letter from an attorney almost broke the chemistry between principals.
Accountants can also influence the deal. For instance, rarely have I met a buyer’s accountant who thought his client didn’t pay too much for a business.
Conversely, I’ve hardly met a seller’s accountant who felt that their clients sold their business for enough money.
Professional business brokers are aware of the various ways a deal can unravel.
For sellers, using a broker means that they can continue to maintain their focus on making the business as profitable and attractive as possible while the business is marketed confidentially. For buyers, using a broker allows them to follow a step-by-step process while remaining focused on choosing the right business for them and the pending matters associated with them operating it.
Buzz Harris is a licensed business broker with The Liberty Group of Nevada. He can be reached at BHarris@TheLibertyGroupofNevada.com or 775-825-3948.
“I point out many cases of where privately owned companies do just as bad a job as publicly owned companies,” says Reno resident and former teacher Robert (R.D.) Gardner.