Understanding why some business sales do not complete
The process of selling a business is typically a complex one and can be disrupted by a range of issues. Some of these may be out of the seller’s control, such as a general market decline, whereas others can be pre-empted with forethought and careful planning.
Some of the common pitfalls during a business sale include a lack of a clear exit plan, an overly inflated value that the market cannot support, disagreements within a family, and the seller's ill health.
By taking a detailed look at why a sale fell through, however, and addressing any problems, there is no reason why the process cannot be completed successfully the next time. So what are some of the common reasons why business sales fall through?
Family disputes
Family-run businesses can be severely affected by disagreements and disputes at any time, but when the business is up for sale long-held differences can quickly surface and jeopardise success.
They might occur over the valuation provided, for example, or even whether the business should be up for sale, but issues that remain unresolved can threaten to disrupt the process at any point.
Clarifying and documenting the contribution of family members to the business before placing it on the market, as well as communicating clearly, can help to avert family disputes and keep a business sale on track.
Problems emerging during due diligence
Due diligence is the phase where potential buyers interrogate the information that has been provided by the seller, carefully checking financials and other data for signs of inaccuracy or potential omission.
Problems can arise if the information presented in the books or other documents differs from that inferred by the seller up until this point, leading to a collapse in trust between the two parties.
It’s crucial to ensure that all information provided to prospective buyers is accurate and can be unequivocally relied upon during this process. Any anomalies are likely to be quickly identified as the seller’s professional advisors scrutinise areas such as financials and legal issues.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
Staff issues
Informing staff about a business sale can be a difficult area to negotiate. If employees are told too early that the business is on the market, disgruntled staff may become disruptive during the sale.
Others may have genuine concerns about the future running of the business and decide to look for new employment. This could potentially leave the business without adequate staff cover and create serious operational difficulties.
Tackling and resolving ongoing staff issues before the business goes on the market is key to avoiding this outcome. The potential for members of staff to cause problems during a business sale is high, which is why awareness and careful pre-planning for the sale are vital.
Failure to collect debts efficiently
Positive cash flow is the lifeblood of successful businesses and one area that can create problems in a sale is outstanding debt and failing to collect in the monies owed. Even if the business is profitable, with inadequate cash it’s at risk of financial decline.
Ineffective credit control procedures, from credit checking new and existing customers to collecting debts, do not portray the sleek and systematic enterprise that a buyer is typically looking for.
If excessive aged debts exist, a solution may be to offer a significant discount to these customers well in advance of the sale process commencing and in exchange for immediate payment.
Careful planning to minimise sale disruption
These issues and problems are all potential disrupters to a successful sale, but they can be addressed in advance with careful pre-planning. It’s risky to place a business for sale with known underlying issues, as the scrutiny under which it’s placed is likely to reveal them at the most inopportune time.
Planning months and years in advance encourages a successful sale, but understanding the reasons for selling and the main objectives is also important. They can then be articulated with confidence to interested parties to instil trust, along with reliable, accurate information.
If you need help with any aspect of selling your business, the Selling My Business team has over 60 years of combined experience and can provide the expertise you need throughout a business sale. Contact the team today.
