You’ve worked hard to build your company and position it as an attractive acquisition target. You found a buyer who is eager to buy your business. And you made sure that your documentation is in order to pave the way for the sale of your company to go through. And then, in the blink of an eye, the deal falls apart.
Unfortunately, deals that look promising don’t always make it to the finish line. As a business owner, there is a lot you can do to eliminate obstacles and clear a path for closing. Here are a few common reasons why deals stumble and what you can do to prevent this from happening.
One common reason that deals fall through is because of information uncovered by the buyer during the due diligence process. Often, this lack of disclosure is done unintentionally, as many business owners are not aware of all of the information that needs to be presented. In other cases, the business owner is unable to substantiate details about the company to the buyer’s satisfaction.
When disclosing details about your company, be thorough and transparent. If you are unsure of what to disclose, consult with a financial advisor or business broker.
Mismatched Business Valuations
When your idea of your company’s value conflicts with your buyer’s, then there is bound to be turmoil. This is why it is important to have your business valued by seasoned professionals. You will be able to justify your selling price with fact-based data, and not just an educated guess based upon vague market data and anecdotal evidence.
At Peek Advisory Group, we use a no-nonsense, analysis-driven approach so you can be sure your valuation is fair, accurate, and well documented. This puts you in a much stronger position to justify your asking price and present the true value of your business.
Lack of Commitment
The idea of “being your own boss” appeals to most people. And why wouldn’t it? You make your own rules, work when you want, and don’t have to obey the whims of your boss(es).
But as entrepreneurs know, there’s a lot more to owning a small business than simply setting your own schedule. In many cases, you are working considerably more hours than any employee, and while you aren’t reporting to a “boss,” you have obligations to keep your customers satisfied and your employees engaged if you hope to build a sustainable business.
When some non-entrepreneurial owners come to realize that owning a business is not about sitting back and watching the money roll in with minimal effort, they may have second thoughts. Make sure to do your own due diligence on your prospective buyer to see if they have the experience, skill, and temperament to run a business successfully and continue your legacy. This will help you recognize early on in the process if someone is the right fit for your business.
While you are able to transfer all business assets to the new owner, the people associated with the company are another story. How do your employees feel about working for the new owner? Is their continued employment necessary for the business to operate – at least in the short-term? And if you are heavily involved in the operation of the business, will your customers remain loyal when there is a new owner?
Demonstrating that you have plans in place to facilitate the transition to a new owner can go a long way in building confidence in the buyer that they are purchasing a business that will remain operational and profitable.
Even when the buyer and seller agree to terms and both parties are ready to proceed with the deal, there still may be other hurdles to overcome.
For example, a landlord may make it difficult for you to transfer your lease to the buyer. Review your lease and make sure provisions are in place to allow a seamless transition. And if your business is one that requires a license or certification to operate legally, it is up to you to ensure that the buyer has the proper credentials and background to obtain the necessary licensure.
Selling a company is a major milestone in the life of a business. It makes sense to hire a professional to help navigate through the process and minimize the chances of a deal falling through.