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Buying a Business Is Far from Simple

Buying a Business Is Far from Simple

Although it can be fairly easy to reach a tentative agreement on the sale of a business, there are so many factors (tangible and psychological) that can cause a deal to fall apart including simply elapsed time. In fact, studies indicate that nearly eighty percent (80%) of all initiated sale transactions fail before ever reaching closing. There are valid and invalid reasons for this happening, and once understood a buyer can prepare effectively to deal with each. However, what is obvious is that the most vital tool to avoid catastrophic deal failure is understanding the fail points and maintaining open communications with the seller to work through any differences. Buyers always need to keep in mind that they are forming a partnership of sorts, and having a seller’s support to get themselves established with their new business is important.

There are several common elements that can keep a sale from closing successfully including a lack of transparency of information, buyer’s price remorse, a lack of willingness to compromise, or even the passage of time to move from step to step in the process. The following highlights what to look for, so that you may avoid these fail points along the sale cycle journey.

Transparency of information. When information about the business is discovered after the fact while the sales process is underway it creates doubt, distrust, and a host of other challenges. During any comprehensive due diligence process most of the information is bound to be discovered by both sides, and not being upfront will severely limit the chance of success. No one like surprises when making a significant purchase, especially the buyer. Being fully aware of the complete set of information is a necessity and the bare minimum in a sales process.

Price remorse. This is a very similar to the concept to buyer’s remorse, however in this case it occurs before the transaction is completed. It even occurs when a buyer has already initially agreed on a price. The driver for this phenomenon is that a buyer discovers that the business is inappropriately valued, or his or her perception of the value has changed. This discovery can be a result of quantitative facts or simply the buyer’s feeling. However, it is absolutely critical that a business is fairly and factually priced and that both parties believe it is fair throughout the sales process. All documentation must support the seller’s claims so that buyers can substantiate the value as “real” and accurate.

Lack of willingness to compromise. It is common for both buyers and seller to get overly emotional about their respective bargaining positions. When this occurs communications fail and each become less willing to facilitate the deal. Always attempting to see the other’s perspective and seeking ways to agree will go a long way to being in the 20% group who succeed in completing the sale.

The passage of time. Patience is not a trait often found amongst buyers and sellers in the middle of a transaction. It’s very easy for either party to lose patience. Frustrations grow quickly as buyer’s requests for information continue and a seller’s probability expectations of the sale diminishes. All parties require constant reminders that a closing process takes time, lots of time. Keeping calm and a level of understanding can be promoted through strong communications between the parties. No one wants to see the deal fail, it just takes effort by everyone to work through it.

Using the services of a professional advisor can greatly reduce the time period and risk throughout the process. Knowledgeable advisors can appropriately advise you on buying or selling a business.

For more information or to schedule a complimentary consultation please contact BridgeLane Advisors, at info@bridgelaneadvisors.com.