This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
What Makes the Sale of a Business Fall
by Tom West
There are myriad reasons
why the sale of a business doesn't close successfully; these multiple
causes can, however, be broken down into four categories: those
caused by the seller, those caused by the buyer, those that just
happen ("acts of fate"), and those caused by third parties.
The following examines the part each of these components can play
in contributing to the wrecked deal:
1. In some instances, the seller doesn't have
a valid reason for entering into the sale process. Without a strong
reason for selling, he or she has neither 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 detailed 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
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 salable under
existing circumstances. Even worse, some sellers do not disclose
that there is more than one owner and that they are not all in agreement
about selling the business.
5. A seller may decide to wait until a buyer is
found and then check with their outside advisors about the tax and/or
legal consequences. At this point, the terms of the deal have to
be altered, and the buyer won't agree. Sellers should deal with
these complications ahead of time. Nobody likes changes...especially
6. 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
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, state, or local governmental agencies.
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, usually attorneys. Attorneys, 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 was too far advanced. 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
Business brokers are aware of the various ways
a deal may fall through. They are experienced in resolving issues
before the business goes onto the market or before a buyer is introduced
to the business. To buy or sell a business successfully, sellers
should resolve any potential deal-wreckers, following the advice
of a professional business broker.
Although business brokers cannot provide
legal advice, they are familiar with the intricacies of the business
sale. They are also familiar with local attorneys who specialize
in the details of these transactions. These attorneys will usually
be more efficient, and therefore more cost-effective, than the attorney
who handles a general practice
About the Author
||Mr. Tom West is the editor/publisher of The Business Broker, a monthly newsletter for the business brokerage field. He has written or co-written numerous books including the The Business Reference and Pricing Guide and The Resource Handbook for Business Brokers. He is a founder, past president, and former executive director of the International Business Brokers Association (IBBA). He is a frequent lecturer and seminar leader on all aspects of buying, selling, or appraising a business. Mr. West is probably the most knowledgeable individual in the country today concerning the issues of buying or selling small to mid-sized businesses.
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