This article was originally posted on 10th May 2017.
We’ve been business brokers since 2005. The key to our success is having people to brainstorm with when we need it. For us, that is our fellow brokers within the Business Partnership network.
Often that support is required most when a sale breaks down for bizarre and unpredictable reasons.
Looking for a handy checklist that will walk you through all that’s needed when preparing your business for sale? We’ve created one with all you need – and you can download it here.
What happens when a sale breaks down
Buying and selling businesses is a complex and lengthy process. So it’s comforting to know there are business brokers supporting vendors and buyers throughout. But sales do still break down.
First priority is always to try and rescue the deal.
- Fix the problem
- Rectify the issue.
- Correct a misunderstanding.
- Find a fair compromise position.
- Put reality back into the conversations when one party or another has reverted to the nature of a petulant child.
That final bullet can be a big issue. It can be a personality clash where one party draws a line in the sand and refuses to move their position.
Interestingly, it is often family members or advisors not involved in the business who are the root cause with home spun advice being given without knowledge of the business or the deal.
“Our fatigue is often caused not by work, but by worry, frustration and resentment“Dale Carnigie
A reminder that giving way on a £1,000 issue allows completion on a £500,000 deal usually puts things into perspective. But people can get tied up in the detail, forgetting the bigger picture or ultimate goal, like retirement.
Sometimes it’s not this simple to resolve. When we’ve exhausted the solutions in our armoury, our fellow brokers help us brainstorm others.
The 10 examples below are the strangest scenarios gathered from our network which could not be rescued.
A business owner will often have a company car. A car that they might not justify the purchase of themselves, but works well as a company asset.
Many business sales see vehicles simultaneously transferred into the private ownership of directors at completion. It’s fairly common.
The problem with one sale stared with a company motorhome. It was purchased to attend a trade show some years before to save on accommodation costs. Only one show was ever attended and the vehicle became the for the sole use of the business owner, touring Europe .
The value of this vehicle has been heavily depreciated to be worthless in the accounts. Yet it still had many years of service left in it.
Vendor wanted to retain the vehicle but refused to purchase the motorhome from the business at any price. In their mind, it was already paid for.
Buyer wanted the 2nd hand market price for the vehicle, if it were to be sold. It was a company asset and just like any plant or machinery, whilst it was written off to zero in the accounts, it still had a value that could be recovered.
We had ourselves a Mexican stand-off and you could argue in favour of both sides.
If this had been a car, the outcome may well have been different. But this was a motorhome which held cherished memories of times with family exploring. This was emotional.
No amount of negotiations could find an amicable solution and the buyer walked away from the deal.
2. Clearing premises
The vendor of a three-storey restaurant accepted an offer for the business on condition the buyer cleared out all the old furniture. The buyer agreed and it was detailed in the Heads of Terms.
Several weeks into the sale, the buyer changed their mind and asked the vendor to clear out the furniture and fittings. The vendor refused and pulled out of a deal worth £440K to them.
Ironically a clearance company could have done the job for a couple of hundred pounds but all the vendor could see was a broken promise.
They were not prepared to sell their business to someone who reneged on their word, no matter what the overall financial loss was to them.
3. Parking spaces
In the sale of a leasehold bookshop, the vendor had stated the terms of the premises lease included the use of 3 parking spaces in an adjacent car park. This is what they believed and this is what they had used throughout their occupation.
The buyer quite rightly did their due diligence using a competent solicitor. This showed that actually only 2 spaces belonged to the premises.
The local council offered that a third parking space could be purchased on preferential terms to rectify the issue. The landlord refused to do this. They didn’t believe it would add value to their lease.
The buyer did not want to pay more for something he was told he already had access to – that made no sense to them.
The vendor was relocating, so they didn’t want to buy it either.
The buyer pulled out with the vendor kicking themselves that they had missed this detail when they had first taken the premises lease.
4. TV coverage
In the sale of a convenience store, completion was imminent and everything running smoothly.
The night before exchange of contracts thieves drove a vehicle into the shop front stealing the ATM. The machine had been emptied for the night and no cash lost. Premises were quickly repaired.
The incident was reported to the Police and the culprits quickly apprehended.
This was an exceptional circumstance with crime for the area being low so the event made local TV news. The buyers saw this, immediately felt unsafe in the area and in the premises and pulled out of the deal.
Ironically, if this had been a high crime area, it probably wouldn’t have made the TV and the buyers would have completed.
5. Eureka moment
Some people just take longer than others to arrive at a conclusion and after exchanging contracts, the buyer of a pound shop realised the enormity of the business he had agreed to buy.
It dawned on him that to achieve sales of £17,000 per week he would have to move at least 17,000 items of stock into the store and into the shelves each week – something he wasn’t willing to do.
The business had not altered, it was always a pound shop and always had high stock movement. The terms of the contract protected the vendor from a buyer pulling out without a justified business reason to do so. Realising late in the day the hard work ahead was not considered to be a justifiable reason to cancel.
The buyers eureka moment and his unwillingness to work hard cost him £50,000 in compensation.
6. Lack of flooding
The sale of a village store in Somerset was close to completion when the buyer saw news of flooding in the area.
Despite the store being unaffected, on top of a hill, nowhere near a river or the flooded area, the buyer pulled out of the deal for fear of future problems.
As we say, sometime irrational fear takes over and no amount of explanation can help.
7. Correct trading permissions
On the eve of completion for the sale of a large brewery worth more than £1m, the bank phoned. It had come to light that the building did not have planning consent to be a brewery, despite having traded from the building for 23 years.
The chief solicitor for the local council tried to intervene and rush through the correct permissions. Sadly they failed to convince the bank that the issue would be resolved. The bank withdrew its funding agreement and the deal collapsed.
Another deal where getting the property details in order, before you sell, would have saved the day. Last minute surprises do cause the greatest grief.
8. Personal possessions
A large oil painting themed to match the business name took centre stage in the décor of a cafe. Commissioned as a gift from the vendors sister when the business launched, it had emotional attachment.
It was not expressly excluded from the general list of fixtures and fittings. The buyer rightly assumed they were buying all the fixtures and fittings within the premises.
On discovering that the vendor intended to keep the painting and remove it from the business, the deal was lost.
Personal items that make their way into a business environment are often statement pieces and the centre of decor. Other things we have come close to collapse with are;
- antique desks
- boardroom tables – nice for a dining room
- office pets!!!
We’ve mentioned due diligence alerting buyers to issues (parking spaces, premises permissions). Due diligence is also important for the vendor.
It is only after offer terms are agreed that due diligence begins in earnest, otherwise you would simply be background checking too many people.
This particular business wanted a secure future for their staff. It was really important to the vendors and they had selected their buyer with this in mind.
Due diligence revealed we had been dealing with a con artists. Good at playing a part and portraying the person the vendors wanted to see.
We were tipped off when the name of their solicitor who popped up in a web search. He had been convicted of malpractice many years earlier. This led to closer inspection.
The buyer and all close family members had each been struck off as directors. Each had a number of aliases. A string of collapsed businesses with unpaid creditors in the thousands.
This time, it was the vendors who pulled out of the deal.
10. Personal injury
A buyer on the brink of agreeing terms on a car hire business vanished. We didn’t hear from them for weeks, a puzzle as they had been very communicative to that point.
They were our preferred buyer but we had others also interested and the sale eventually moved forward with one of them. Months later we regained contact, but it was all too late for the original deal.
The prospective buyer had been a police witness in a criminal trial. At the time we should have been finalising offer terms, they had been the victim of a drive-by shooting by associates of the defendant.
Weeks in hospital turned into months of physio and rehabilitation before they were ready to return to business. It’s like something out of Hollywood.
What these failures teach us
Whether your the vendor or the buyer, these failed completions it teaches us;
- Full disclosure is essential on all aspects throughout a deal
- Never assume something is obvious. Always ask/divulge
- Compromise is sometimes needed to keep a deal alive
- Park your personal emotions and attachments at the door. This is business.
- Due diligence is vital and could save you from a bad decision
- It is worth paying for experienced experts to help you through the process.
Sometimes you can’t predict the future and sadly, a sale is not meant to be. The earlier you can discover this, the less time you waste when you could be moving onto the next buyer.
The better prepared your business is before you try to sell it, the more likely you are to attract competing interest. Like in our final example, one buyer was lost but another was ready to step in. That is a commanding position to be in.
Start preparing your business today by downloading our ebook which looks at the 8 common sense steps to add sale value to your business.