How to overcome 5 common problems that derail many business sales.
For owners who are selling their business here is an important general rule to remember.
The closer you get to the end of the process of selling your business the more likely you are to encounter unexpected problems that can derail the sale!
This is how it often unfolds. After a long period getting a business on the market you’ve finally gotten a decent offer from a buyer, you have a deposit, documents are being prepared and settlement dates are being discussed.
It might seem like all of your hard work is just about to pay off.
What could possibly go wrong?
A whole lot actually.Following are 5 common 'last minute' deal killers and advice on how to deal with them. Left unaddressed they will cause your deal to fall over.The upside is there are usually 'tell-tale' signs that you have a potential issue about to emerge.
- Past, current and future financial performance,
- Customer loyalty,
- Supplier contracts,
- Technical & product or service information, and so on.
- The buyer being genuinely nervous or uncertain, and all the way to
- Less scrupulous advisors to the buyer simply wanting to accumulate more billable hours to be '100% certain'.
Any offer that is subject to the approval of bank financing should put you on alert. It’s really hard to get finance for small business acquisitions so you need to assess whether the buyer has a realistic chance before going too far down the track with an offer and due diligence.
As with a lot of things you need to pay careful attention to the wording of their 'subject to finance' clause in their offer. If it’s really broad then they could use it as a 'free kick' to get out of the contract at a later stage, just in case they change their mind.
The best way to tighten this up is to make the subject to finance clause very specific so that it includes;
- How much money they are borrowing,
- Which bank or banks they are approaching, and
- What security they are proposing to offer the bank.
At a time of high stress you get some unprompted advice from a well-meaning family member of friend which causes you to rethink what you want to do. A great example is "surely your business is worth a lot more than x dollars, after all the effort you put in"
On any given day, and driven by the uncertainty about life after business, your view of the offer you have on the table can change.
By the time you have an offer for your business the chances are that more of your nearest & dearest will know. Most of them will be excited for you and genuinely interested in the outcome. But whether they have the all-round commercial experience and understanding to offer worthwhile advice is another question all together.
Where possible I recommend that you keep your business sale as private as possible and be very careful about who you discuss it with. And write down your personal objectives and plans for life after business. In times of stress and uncertainty it's a great reminder of what you really want to do that will help you 'stay on track'.
Unless you get your key deal terms tightly defined and written down in a document, regardless of how much you might 'trust' the potential buyer, there is always a high risk that there will be requests or demands for changes to key deal terms.
If you don’t understand something then don’t agree or sign off on it.
Whether you have decided to advise staff early or late in the sale process or, not at all, is a matter for your judgement.But staff getting wind of the sale and threatening to walk out unless they receive an additional financial incentive e.g. a one-off bonus, is a common occurrence.
For many businesses there will be staff who are extra important to the future success of the business, and especially to the prospective new owner.
Be prepared that some staff may request other incentives in order for them to go along with the sale. Whatever this might cost financially needs to be factored in when thinking about what net value you expect to get on sale of the business.
Engage an experienced commercial adviser and really keep your eyes and ears open for these sorts of potential issues. If you lose a sale in the final stages it is really hard to 'dust yourself off' and restart the entire sale process. There is more time, more costs and a real sense of a lost opportunity.
- A proven and legitimate reason to buy your business, and
- Demonstrated financial capacity to fund the purchase.