The Top 4 Reasons Why Deals Fall Apart
It takes a lot of work to buy or sell a business. When a once-promising deal is not successful, this can be due to a wide array of reasons. However, understanding why a deal can fall apart in advance can dramatically increase your odds of success.
Some of the reasons that deals fall apart are reasonable, while other reasons, to be blunt, are unreasonable. Let’s take a look at four common reasons that are seen in the world of business brokerage.
Table of Contents:
- Financial Issues on the Buyer’s End
- Lack of Financials on the Seller’s End
- Last Minute Surprises
- Business Issues Left Unaddressed
Reason 1- Financial Issues on the Buyer’s End
One of the most common reasons that deals fall apart is that buyers simply can’t find the needed financing. Working with a business broker or M&A advisor is a way to safeguard against this outcome, as an experienced brokerage professional knows how to pre-screen prospective buyers to increase the odds of success from a financial standpoint.
Reason 2 – Lack of Financials on the Seller’s End
A second reason that deals fall apart is that the seller doesn’t have all of their financials in an up-to-date form. Sellers must constantly strive to put themselves in the shoes of a prospective buyer. Virtually no serious buyer would move forward with a deal without having a clear picture of the finances of the business. This is an issue that can be circumvented with the right level of planning and preparation.
Reason 3 – Last Minute Surprises
A third common reason that deals fall apart occurs when a surprise happens at the last minute. It is almost impossible to safeguard against every possible surprise, however, an experienced business broker knows how to navigate the due diligence process so as to dramatically reduce the chances of unexpected problems. Again, brokerage professionals have tried and tested techniques which help reduce the chances of these unwanted surprises.
Reason 4 –Business Issues Left Unaddressed
Preparing a business to be sold isn’t something that happens overnight. Sellers should expect that any serious buyer will do more than “kick the tires,” but will instead have their experts go over every aspect of the business. Administrative, environmental, or legal issues that have not been properly addressed can serve to raise many red flags. Needless to say, this can scare prospective buyers away from a business. There is no replacement for proper preparation and meticulous due diligence months or preferably years in advance.
At the end of the day, there are many reasons that a deal can fall apart. Buyers and sellers simply can’t safeguard against them all. However, an experienced business broker or M&A advisor can often see problems on the horizon. Plus, when you work with an experienced professional, it can help keep emotions in check. It’s important to keep all parties involved focused on success. With the right team in place, it is possible to dramatically decrease the chances of surprise events ruining what would otherwise be a good deal.
Copyright: Business Brokerage Press, Inc.
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The Tremendous Importance of Maintaining Confidentiality When Selling Any Business
When the time comes to sell a business, business, confidentiality must be placed at the top of the list. One of the quickest ways to damage any business that is for sale is for confidentiality to be breached. Once confidentiality is breached it can be difficult, or even impossible, to contain or repair the damage. No business in any industry is exempt from this rule.
It is no accident that savvy and experienced entrepreneurs, business owners, attorneys, accountants, and business brokers are dedicated to maintaining seller confidentiality. A single breach of confidentiality can potentially destroy a business or, at the very least, negatively impact its value. A breach of confidentiality, even if it doesn’t destroy a business, can tarnish its reputation and ultimately deflate its value.
When it becomes public that a business is for sale, there are many potential negative ramifications. Key employees, customers, and suppliers may all think that it is time to begin looking elsewhere. The loss of even one key employee, customer, or supplier could have significant ramifications for your business. Employees may worry about the stability of their position and begin looking for employment elsewhere. Worst of all, employees may take their knowledge and expertise to a competitor and, in the process, weaken your business.
Employees in management positions may leave and, in the process, create a massive hole in your organization that will be difficult to fill, especially in a timely manner. Key customers and suppliers, worried about disruptions, may take their business elsewhere. All of these variables can combine to negatively impact your bottom line and potentially decrease the value of your business overnight.
As if all of this wasn’t bad enough, there is the very real problem of the competition. If the competition discovers that your business is for sale, they may share this information with your key suppliers and customers. Your competitors may become very aggressive in their quest to steal your customers and take advantage of the situation.
A breach of confidentiality can severely hamper your ability to sell your business. Business brokers and M&A advisors are experts at maintaining confidentiality through all stages of the sales process. We do more than simply have prospective buyers sign confidentiality agreements. Experienced business brokerage professionals will vet potential buyers to ensure that they are not just window shopping or gathering information, but are instead, truly serious about buying your business.
Working on your behalf to ensure that a prospective buyer is a serious buyer is one of the best ways that we can protect confidentiality. The process of selling a business is a complex one, and at its foundation is taking steps to maintain confidentiality.
Copyright: Business Brokerage Press, Inc.
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How Can You Identify a Serious Buyer?
No one wants to waste their time and energy trying to sell their business to someone who isn’t actually planning to buy. That’s why it’s so important for you and your business broker or M&A advisor to focus on the most qualified and serious buyers. But how can you really make these kinds of assessments about a buyer’s viability until they sign on the dotted line? Let’s take a look at some signs that will help you figure out your buyer well in advance.
Table of Contents:
Do They Have a History of Ownership?
When someone has owned a business in the past, they have a firm understanding of what is involved. As a result, they are more likely to be a serious buyer. It also means they are more likely to move forward. You will also find that they have the ability to make a substantial down payment and financing options. While they might want you to help them with financing, you should still be looking to ensure they will put their own capital at risk as well.
Are They Seeking Information About Your Cash Flow?
If a buyer is serious, it goes without saying that they will want to make sure the business is profitable. They should be asking a lot of questions about not only your cash flow, but also your inventory. If you have unusable inventory this could be of concern to a buyer. Be sure to disclose this information upfront, as it will likely be discovered in the due diligence process regardless.
Are They Asking About the Health of Your Staff?
Any real buyer would want a dedicated and reliable staff. If your buyer is asking about salaries, it is a good sign that they are serious. After all, if you’re only paying minimum wage, chances are that your staff will not have a lot of staying power. These days, many companies are suffering due to staffing issues, and it’s something that should be front and center in any serious buyer’s mind.
Do They Have an Interest in the Industry?
If your prospective buyer is asking questions about the industry, that is another good sign. After all, who would really want to buy a business without detailed knowledge about the industry they are about to enter? Along the same lines, if you know your buyer has experience in a given industry, it means they are more likely to go through with a purchase. If they lack experience in your industry, do they at least seem passionate about the industry? If they seem like they are not asking probing questions, this might mean they are wasting your time.
Are They Asking About Capital Expenditures?
Your prospective buyer will want to know how money is being spent. You can expect them to make sure that major expenses have already been paid for as they will want to make sure they won’t be caught off guard by large pending purchases.
Do You Have Professional Assistance?
The bottom line is that the more in-depth questions a person is asking, the more serious they are likely to be. Your business broker’s job is to screen prospective buyers. Years of experience doing so helps them know the warning signs that pop up when buyers profess to be interested, but are not likely to go through with the sale.
When you are trying to sell your business, it is critical that you focus your time wisely. Your brokerage professional will help ensure that you do not waste time working with people who are just kicking the tires.
Copyright: Business Brokerage Press, Inc.
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The Top Ways to Create an Attention-Grabbing Sales Ad to Sell Your Business
A major part of selling your business is getting the word out. After all, the more people who know your business is for sale, the better off you’ll be. In Bob House’s recent article, “How to Create an Effective Business for Sale Ad and Ensure It Gets the Best Result,” House gives readers an assortment of tips that he believes will help sellers attract higher offers from real buyers.
Table of Contents:
Getting The Word Out
As House wisely points out, many buyers wait until the last second to dive in and create a good sales ad. In fact, many buyers fail to grasp the real importance of creating a quality and compelling advertisement. Imagine creating a good sales ad like you would go fishing with a group of friends. The more friends you have on your fishing trip, the greater the odds that someone catches a fish. In much the same way, the more people who know you are selling your business, the greater the chances that you’ll get some serious “bites.”
Tips For Receiving More Attention
House has five key tips for attracting more attention from prospective buyers via your sales ad. At the top of the list is to be descriptive. Your sales ad should give an excellent description of your business and its unique features. As House notes, you want to “paint a clear picture.” In other words, now is not the time for mystery. You want prospective buyers to have a very clear idea of what kind of business they could possibly buy.
Headlines Count
Secondly, you should have a great headline. People have always skimmed, but the rise of the Internet has taken skimming to a whole new level. Your sales ad should have a very engaging and interesting headline. You want to capture people’s attention. A good place to start is by determining what your business’s best feature is and emphasizing that feature in your headline.
Incorporate Top-Notch Images
Third, the old saying that a picture is worth a thousand words absolutely applies to selling a business. Just as a great headline will capture people’s attention, the same holds for a great picture. Consider having a professional photographer take the photo, as he or she may have tips to make your business look its best that you may not know.
Your Financials
Fourth, your ad should definitely include key financials. Any serious buyer will be very concerned, if not obsessed, with your financials. Information such as cash flow and income statements is a good idea, as many potential buyers focus their business searches around key financial metrics.
Don’t Forget The Final Step
Finally, if there has ever been a time in your life to proofread, this is the time. In fact, you should consider hiring a proofreader to look over your ad for grammar and spelling mistakes. As House notes, you want prospective buyers to realize that you are attention-oriented and responsible. A simple grammar or spelling mistake could wreck a potential deal.
Creating a great sales ad is an art form. One of the best ways to ensure that you have a great sales ad is to work with an experienced business broker. Business brokers know what buyers are looking for, have great marketing professionals at their disposal, and can help you frame your business in the best light possible.
Understanding M&A Purchasing Agreements
M&A purchasing agreements can have a lot of moving parts. A recent article from Meghan Daniels entitled, “The Makings of the M&A Purchase Agreement” serves to outline a range of facts including that every M&A deal is different. The article, which serves as a general overview, raises a range of good points.
Table of Contents:
Components of the Deal
It should come as no surprise that M&A purchase agreements have various components. Everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants are all covered in these purchase agreements. Other key factors included in M&A purchase agreements are closing conditions and break-up fees.
Advice for Sellers
In her article, Daniels includes a range of tips for sellers. She correctly points out that negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) can be both time consuming and stressful.
As any good business broker will tell you, business owners have to be careful not to let their businesses suffer while they are going through the complex process of selling. Selling a business is hard work, and this fact underscores the importance of working with a proven broker.
Likewise, Daniels observes that any serious buyer is likely to look quite closely at your business’s financials, which is yet another reason to work with key professionals during the process. Additionally, you don’t want to wait until the last moment to get your “financial house in order.”
You can be completely certain that prospective buyers will want to examine your finances closely before making an offer. The sooner you begin working on getting your finances together, the better off you’ll be.
Use Trusted Pros
Another key point Daniels makes is that there will be tension, as every party is looking to protect their own best interests. Having an experienced negotiator in your corner is a must. Make sure your negotiator has bought and sold businesses in the past, and he or she will understand what pitfalls and potential problems may be lurking on the horizon. Daniel’s view is that the sale price isn’t the only variable of importance. Factors such as the terms of the deal must be taken into consideration.
The bottom line is that there are many reasons to work with a business broker. A business broker understands the diverse complexities of an M&A purchase agreement. They also have experience helping business owners organize their financial information and can prove invaluable during negotiations. For most business owners, selling their business is the single most important business decision they will ever make. Find someone who understands the process and can act as a guide through the process.
Copyright: Business Brokerage Press, Inc.
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Questions to Consider for the Serious Buyer
A serious buyer should have the answers to the following questions:
- Why are you considering the purchase of a business at this time?
- What is your time frame to find a suitable business?
- Are you open-minded about different opportunities, or are you looking for a specific business?
- Have you set aside an amount of capital that you are willing to invest?
- Do you really want to be in business for yourself?
- Are you currently employed or unemployed?
- Are you the decision maker, or are there others involved?
The real key to being a serious buyer, however, is whether the individual can make that “leap of faith” so necessary to the purchase of a business. No matter how much due diligence a buyer performs, no matter how many advisors there are to advise the buyer, at some point, the buyer has to make a leap of faith to purchase the business. There are no “sure things” and there are no guarantees. If a buyer is not comfortable being in business, he or she should not even contemplate buying one.
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