The Top 5 Things That Kill a Deal — And How to Proactively Overcome Them
We’ve sold hundreds of businesses. With all of the successful deals comes many deals that unravel. Here are the top five reasons and how to overcome them:
The Problem:
If your financials aren’t clean and accurate, buyers get nervous. It creates doubt about how well the business is really performing.
How to Overcome It:
Get your books in order before you go to market. Bonus points if you do it before contacting a business broker, though they can provide additional insight on how to sharpen them up. If numbers aren’t your strong suit, lean on your CPA and/or Bookkeeper here.
The Problem:
If you’re the one making all the decisions and running the show, buyers worry about what happens when you’re gone. And many entrepreneurs aren’t looking to be tied down 40 hours a week running a business.
How to Overcome It:
Start stepping back from the business well before you plan to sell. This can take a lot of time to find the right people, but delegating responsibilities and putting systems in place adds value and peace of mind for buyers. Some businesses can support a management team, so do what you can, within reason, to distance yourself from the day to day.
The Problem:
This is probably the number one reason deals die. A surprise, whether intentional or not, is a bad look. Expenses not on the P&L, legal issues, a new competitor, lease rate increases, new industry regulations. etc. We’ve seen it all. Be upfront to your broker and the buyer. Often these things can be worked out, but if they are uncovered in due diligence, trust is lost and the buyer will move on to something else.
How to Overcome It:
Be upfront about any potential issues early on. Transparency builds trust. If there’s a problem, disclose it before due diligence starts and have a plan for how it’s being addressed.
The Problem:
“Time kills all deals.” It’s tough running a business and selling it at the same time, but if you aren’t able to answer questions and process documentation requests within a day or two, then you’re risking losing motivated buyers. Yes, contracts have deadlines to avoid this, but it doesn’t mean you should always wait until the last minute. Strike while the iron is hot!
How to Overcome It:
Set expectations early about the process and timeline, and make sure everyone stays informed along the way. Be proactive. Process requests right away instead of procrastinating and forgetting before it is too late. You’ve built a sellable business. You know how to do this. Treat this process the same way. You’re on the home stretch!
The Problem:
Even if the buyer and seller are ready to close, third parties can delay and derail the deal. Landlords may not approve lease assignments, franchisors might have their own approval process, and lenders are all but guaranteed to take an eternity.
How to Overcome It:
Get ahead of it. Communicate with landlords, franchisors, lenders and other important third parties as soon as a deal starts to come together. Understand their requirements and timelines, and keep them in the loop. Communicate clearly. And remember, the squeaky wheel gets the oil.
