Not all business sales go to plan. In fact, you can almost guarantee something unexpected will come to light after you’ve agreed your offer. That’s why there are many questions when you decide “I want to sell my business“.
In this situation, communication and action are critical. Here are our top 9 circumstances to avoid during this popular business exit strategy.
1. Don’t panic when communication stops
If your buyer goes silent and stops communicating with you, don’t panic or immediately think the worst. There could be a simple reason behind it.
In our time as brokers we’ve seen people fall ill, go on holiday, move house or have to deal with an immediate crisis in their own business. All distract and make them less communicative. It could be that they are waiting for a meeting with their advisors and have nothing to say until that happens.
All it takes is a few phone calls to understand the reasons for the silence and get the sale back on track. We’ve even conducted meetings at a hospital bedside due to an untimely accident….at the request of our client.
2. Personality clashes
Whilst everyone would hope to find the perfect buyer for their business, compromises are often made. A personality clash with your buyer is easy to overlook when they are making an offer, but when you begin to work more closely with them through the due diligence process, it becomes much harder.
Try and put your personal differences aside. This is a short term inconvenience for a long term goal. Stand your ground on important points, but if you buyer has the bravado of Trump and you are more of akin to the Dali Lama, find a middle ground.
3. Trying to change the terms of the deal
This is a big one, and both sides can be guilty. Often referred to as Gazundering.
When a business is advertised for sale, an offer will be received and terms negotiated. Only after this does a buyer gain access to the company in order to conduct due diligence. Due diligence allows the buyer to confirm that the information told to them so far holds true. That what they are expecting to purchase is actually what they will get.
If at any time they uncover information which changes the suitability of the business for the offer they have put forward, they are going to want to revise their offer. And that his fair.
Understand the reasons they want to make a change. It could be a misunderstanding or you can provide further information to contradict the conclusion they have reached.
It is when buyers (and sellers) try to change terms for no reason, other than personal financial gain, that it becomes poisonous. As with so many of the items we are going to run through in this article, communication and conversation is key.
4. The introduction of a new party rocks the boat
A simple example here is where a new solicitor is seconded into a deal, because the original has been tied up elsewhere. But it could be an accountant, landlord, member of a management team, even family members not connected to the business being sold.
The new person comes along, not having been party to the negotiations and conversations earlier in the sale. The danger is they begin to resurrect questions and comments which were settled. If something was contentious at the time, but a resolution was found, reopening that can of worms can totally derail things.
This is where a good business broker can sit between all sides and take control, reminding everyone of all points agreed and the reasons why.
5. Unexpected changes to the business
This is basically when the business being sold has changes forced upon it by things outside of the owners control.
If you think back a couple of years, the changes and strengthening of GDPR regulations left a lot of businesses with much reduced customer contact lists. So, like this, the changes you weren’t expecting could be legislative and imposed (trade regulations after Brexit; lockdown restrictions of the pandemic) and if your business doesn’t comply, the sale could fold. Think disability access, H&S regulations, minimum wage requirements.
Other changes outside of your control could come from staff, customers and suppliers. The resignation of a key team member that the business sale pivoted around. The loss of a major client and with it, a chunk of turnover. The loss of a supplier and the inability to source the same quality and quantities from elsewhere.
These things are fundamental to the ongoing success and profitability of the business being sold. Take one away, or impose regulations on it and the business becomes less viable, jeopardising your business exit strategy and the sale.
6. Skeletons in the closet
Unexpected changes are one thing, but if you try to hide something detrimental within your business, you will come unstuck at some point.
If you are lucky, you may get through due diligence without it being discovered, but remember, there will be warranties and indemnities contained within the contract of sale which give the buyer recourse later on.
If there are some business skeletons in your closet, lay them out for all to see. This way the offer someone makes is with the full knowledge of these issues, and they can’t recoil from it later on.
7. Obstructive landlords
Where leasehold premises are concerned it is prudent to stay on good terms with your landlord. We have seen business sales falter simply because of the length of time it takes a landlord to respond to requests. We have also seen some landlords trying to cash in on extra fees at the point of a change in tenancy.
Thankfully, good landlords far outweigh the less good. Have sympathy for your buyer and work with them to find a resolution with your landlord.
8. Due Diligence delays
Due diligence should be detailed and give the buyer comfort in the business they are acquiring. However, due diligence should not be open ended. It should be time focused and scheduled against specific items. Most usually financial due diligence and legal due diligence.
A good working relationship with your business broker, accountant and solicitor will help to keep this on track.
9. Don’t sweat the small stuff. Remember the bigger picture
All too often, a combination of issues will come to a head over something really quite insignificant. Million pound deals can teeter on the precipice of collapse over a company car. But there is also matters of renegotiation of terms (item 3 above).
If a buyer, after their due diligence, has a legitimate argument to re-negotiate the offer made, consider the bigger picture. They may reduce their offer by 50,000 but if that still leaves you, a satisfactory deal, don’t get distracted by the renegotiation.
Key to this is to have had discussion, before you even bring the business to market, on your number. The number you feel is fair value for your business, combined with your personal needs, that you are willing to accept and below which you will not go.
If a re-negotiation of the offer keeps things north of this figure, don’t jeopardise the total deal for the sake of a smaller item.
Are you the best person to resolve the situation?
Having identified why the sale has stalled, consider if you’re the best person to get involved in resolving issues. Vendors can often be so emotionally involved in their business that objectivity becomes impossible. Use your business broker to represent your opinion if it will be more beneficial.
Your broker will have had numerous conversations with all parties in agreeing an offer to begin with, and will use their negotiation and diplomacy skills to optimum effect.
Remember, your broker’s fee is likely to be dependent on the sale completing, so they have laser focus on rescuing the deal, but they still act under your instruction. It is still your decision to walk away or find the middle ground.
To avoid deals breaking down, make your priorities clear at the outset
As soon as you accept an offer, agree a deadline for completion that your accountant, solicitor and business broker, plus any other important parties such as your landlord can achieve. This will ensure everyone is heading in the same direction. Setting unrealistic goals are a road to disaster.
Communicate, communicate, communicate
Keep all parties in the loop at all times as you head towards completion day. A breakdown in communication is often the cause for a lot of distrust.
If you’re late to provide information to your buyer, tell them why and let them know. If you can’t get into your solicitor for a few days to review the proposed contract of sale, let your broker and buyer know. If your landlord is slow to respond, let people know.
Being informed is better than working in a vacuum and will prevent fears growing in a buyer’s mind.
A business is a complex asset. A business sale has to be pro-actively managed from the day of instruction all the way through to final completion to keep it on track. Always be prepared for the best and for the worst outcomes.
If you have reached the offer stage but failed to complete on a sale, please get in touch and we can work through the issues.