8 Reasons Transactions Fail to Close

There are a million ways your business sale can go south. But being aware of the most common pitfalls can help you prepare – and move towards a successful deal. Here are eight of the issues we see regularly.

  1. Unrealistic expectations – Every owner wants to get the most they can when they sell their business. But expecting to receive above market value can stop a deal. The number of interested and qualified buyers for any business can be a select group. If you’re looking just for those willing to pay more than market value, the pool of potential buyers shrinks even more. These buyers might not be ready, willing, or able to transact. And don’t overlook the value of a professional appraisal. It’s an impartial look at the true market value of your business – not what you’d like it to be.
  2. Lack of preparation – When your dad said failing to prepare is preparing to fail, he was right. Failing to get your ducks in a row before putting your business on the market can be a fatal mistake. Books must be in order, management for the transition must be in place, and potential issues must be discussed and analyzed. Your mergers and acquisitions firm can help you fully prepare your business for the rigors of the sale process. If you don’t prepare ahead of time, due diligence can unearth surprises that can give a buyer cold feet – and you will have wasted a lot of time and energy.
  3. Material changes – Adverse changes can happen at any time. Even though they’re out of your control, shifts like an economic downturn or major change in the industry can stop a deal in its tracks. Your best bet is to build your business for the long term and prepare for adversity. Diversify your vendors and customers to decrease risk. Your business will be stronger for it and potential buyers will take notice.
  4. Ignoring the business – Selling a business is a job in and of itself. Owners who get distracted by the sales process and figure the business will run itself may find themselves with a downturn in business. But putting off critical decisions or ignoring day-to-day operations can cause a business to suffer – and a deal to fall through. Buyers don’t want to get involved with a struggling business. Your organization should operate at peak efficiency for the duration of the sale process. And that means having a hands-on owner.
  5. Failure to disclose – The not-so-perfect aspects of a business always come out during due diligence. It’s best to ‘fess up from the start about any gliches. Don’t guess at important recasting items. Your M&A advisor can help you prepare and present accurate disclosures. These show your thorough knowledge of your business and industry, and can even offer possible solutions to the challenges the business faces. A disclosure can help you build a trusting relationship with a potential buyer. But failure to disclose can irreparably damage this relationship and stop a sale.
  6. Overemphasis on money – The highest sale price doesn’t always indicate the best deal. Many sellers choose a buyer on money alone, but they miss out. Lower prices are often accompanied by fewer contingencies, better employment agreements for management, and more up-front cash in the deal. A higher price tag can often have many strings attached. Conditions ranging from environmental issues, contracts with vendors or customers, or pending litigation can keep a high-price deal from closing soon – or ever. Consider the big picture when you choose a buyer. And keep the money in perspective: multi-million dollar deals have failed over a few thousand dollars.
  7. Inexperienced advisors – An experienced M&A advisor can guide you through the process and represent your best interests. The chances of your deal closing increases with professional guidance because you’ll be prepared and ready for any obstacles. Some CPAs and attorneys state they can sell a client’s business, and they can. However, sales with M&A advisors typically result in more closed transactions and higher sales prices. Use your advisors for their strengths. Partner your M&A advisor with an attorney and accountant who focus and are experienced in business sales transactions, and you have a strong M&A team.
  8. Time – No one likes long delays and lengthy standstills. As the sale process drags on, both sellers and buyers can lose interest. Financial and strategic situations fluctuate, and sellers often miss out on discussions with other buyers who might be better fits. Times of inaction are a normal part of the sales process – within reason. Work with your advisor to determine a fair window for due diligence. He or she will also work to keep the deal moving forward.

Selling your business is too important to leave to chance. Call O’Keeffe & O’Malley at 913-648-1085 for a confidential meeting.