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by Tom West
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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:
The Seller
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 there.
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 buyers!
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.
The Buyer
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, state, or
local governmental agencies.
Third Parties
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 time.
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
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