The Sign Businesses For Sale Blog
The Top 3 Reasons Why Deals Fall Through
No one likes to think about the deals that didn’t succeed. However, the fact of the matter is that sometimes things go wrong during the process and a sale doesn’t successfully close. We have pinpointed the most common reasons why this happens into three main categories. By understanding the issues that can prevent a deal from finalizing, we are able to dramatically maximize the odds of success for clients.
1. Issues with the Seller
If a seller lacks a strong reason for wanting to sell his or her business, that seller is often unable to be flexible on the terms of a deal. As a result, when complexities arise during the sales process, the seller doesn’t have the patience, commitment and/or stamina to work to overcome those issues. In many cases, a seller has presented an unrealistic price for the business and simply cannot be realistic about the true value the business will sell for on the market. Another common issue that arises with sellers is that they are not fully transparent with the potential buyer. For example, they might be neglecting to mention serious problems with the business, such as new competition on the horizon.
2. Issues with the Buyer
Just like circumstances surrounding the seller may interfere with the sale of a business, the same is true for buyers. In some cases, the buyer is just mildly interested in being a business owner. As a result, he or she doesn’t have the wherewithal to continue on and navigate the complexities that can arise during the stages leading up to a successful deal. There are other issues that often pop up with buyers as well. For example, they also may have unrealistic expectations regarding price. Some buyers are not willing to pay the fair market value for a given business. In other cases, once they find out the amount of work that will be required to make the business successful, they are unmotivated to continue.
3. Third Party Interference
In some instances, there is no issue regarding the buyer or seller. Instead, it is a third party that interferes. An example of this would be a landlord being unwilling to transfer a lease or grant a new one. Or unexpected issues with the federal or local government could cause problems. Another problem that involves a third party occurs when outside advisors, such as attorneys, overlook the fact that the goal is to put together a deal that will work. Instead, they get so caught up in protecting the best interests of their clients that they erect too many roadblocks for a deal to succeed. These types of problems are often completely unexpected by either the buyer or seller.
It is hard to argue with the fact that if a buyer isn’t really committed to selling, perhaps it is not the best choice for them in the long run. The good news is that if potential problems are handled at the appropriate stage of the deal, most business deals do come to a successful conclusion. Business brokers and M&A advisors are specialists when it comes to resolving and circumventing potential issues.
Copyright: Business Brokerage Press, Inc.
The post The Top 3 Reasons Why Deals Fall Through appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The Four Essential Stages of a Closing
When it comes to reaching a successful closing, there are four important stages to keep in mind. In this article, we will take a look at the process and what sellers can expect. If you are planning to sell a business, it is also helpful to understand in depth what the stages are from a buyer’s perspective.
The Letter of Intent (LOI)
The letter of intent is one of the responsibilities that your business broker or M&A advisor will take on to assist you. Your letter of intent should include the price, terms, time frame anticipated as well as other factors, such as the seller’s transition and training. Details such as what is included and what is not included in the deal should always be addressed in this agreement.
Due Diligence
The due diligence process is also an essential step. Your business broker or M&A advisor will guide you during due diligence. All important facts and documentation should be evaluated, ranging from tax returns and internal P&Ls to leases, bank statements, and customer/employee lists. Buyers who do not invest enough time and energy into due diligence can often have serious regrets after the deal has closed. Be sure to take your time with this stage.
There are other areas of due diligence that should not be overlooked including the very important NDA, financial statements, credit reports and other factors. If you want to have a smooth closing (which clearly you do!), you will want to wisely invest your time in due diligence.
Financing Approval
Financing approval is considered your lender’s responsibility. However, if you need advice and insights, your business broker or M&A advisor should be able to assist you. You may want to look into local SBA lenders or seller financing.
Agreement Drafting
The final agreement drafting period must be taken seriously. This is a step where your attorney will be of tremendous assistance. Your written agreement should cover a wide range of aspects including everything from payment terms to assets and liabilities. Both the buyer and seller should know exactly what the arrangement will be.
When these four stages are followed properly, your deal should close in a timely and effective manner. If you have any concerns or uncertainties about these parts of a closing, be sure to always ask the necessary questions.
Copyright: Business Brokerage Press, Inc.
The post The Four Essential Stages of a Closing appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Take Inventory of Your Company
Most business owners don’t give a second thought to the idea of going to the doctor for an annual physical. So why do they not give the same level of care and consideration to their company? The fact of the matter is that many executives literally go decades without giving their companies a “physical.” They only stop to truly evaluate their business when required by regulations or another matter forcing them to do so.
Consider an Annual Valuation
Let’s take a look at some of the reasons why business owners should get an annual valuation. The first issue concerns the curveballs life often throws at us. At any given time, you and your business could be unexpectedly hit with everything from partnership issues or life changes like a divorce to changes in bank relationships. When you keep careful track of the value of your business, you will know in advance how potential changes would affect you. Perhaps even more importantly, you will gain an understanding of the health of your business.
Monitor Business Growth
It’s critical to be aware of how your business compares from one year to the next. Are values definitely increasing? If not, you would surely want to know immediately and start making necessary adjustments. If a major problem were to surface, you would want to know about it right away so that you can take action. Otherwise, you might just let the years pass you by while this issue goes unchecked. This is the kind of data you will gain when you commit to regular valuations.
Be Prepared for the Unknown
You might feel far from ready to sell. However, you should always be ready if the situation does present itself. What if an amazing opportunity showed up on your doorstep? On the flip side of the coin, what if a life issue like illness put you in a situation where a sale was suddenly necessary? If you are not ready both mentally and with the necessary paperwork for your business prepared, you might miss out on a legitimate opportunity.
Statistics gathered from a prominent accounting firm showed that 65% of business owners do not know what their company is worth. However, at the same time 75% of the net worth of these business owners is tied up in their business. The problem with these statistics is quickly evident. Be sure to take as good of care of your business as you would take of yourself.
Copyright: Business Brokerage Press, Inc.
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