Companies buy and sell all or part of other businesses on a pretty regular basis, but getting through the sales process isn’t always easy to do. There are plenty of times throughout the life of the transaction that things can easily go wrong, from the very initial discussion to sitting at the closing table itself. Although there are a lot of different reasons that the transaction may fall apart unexpectedly, there are some deal killers that pop up more often than others. Here are four ways a business sale can get derailed:
1. Valuation Discrepancies
Business owners clearly want to sell their companies at top dollar, but whether a company is actually worth the amount that the sellers expect is a whole different story. In many failed business sales the primary problem boiled down to discrepancies between the seller’s valuation expectations and the price the buyer was actually willing to pay. It is imperative for company owners to hire the appropriate professionals to help them come up with an accurate valuation. Seasoned professionals know all too well that failing to manage a seller’s expectations, especially with respect to value, not only can but more than likely will get in the way of the deal.
2. Due Diligence Surprises
Assuming that everything goes well during the initial discussion and formal negotiations, the prospective purchaser is going to mandate a fairly thorough due diligence investigation to ensure that it is getting that for which it has bargained. Unfortunately, people often inflate their numbers and espouse the company’s ideal performance rather than the reality in order to entice buyers to make the kind of offer that the seller is seeking. There have surely been sales in which some of these fabrications have gone unnoticed, but if the due diligence investigation is done properly, the truth should reveal itself. There is perhaps nothing more damaging to a potential sale than finding out that the seller lacks credibility, and it is never acceptable to make a sale by deception so transparency at all times is critical.
3. Data Drama
Successful companies that are sold for a handsome sum often have valuable proprietary information or provide a unique good or service that is dependent on the business’s special technology or knowledge. This kind of sensitive information must be adequately safeguarded or a sale of the business down the road simply may not be feasible. Of course, if the sales process begins and the prospective buyer learns that the company’s valuable intellectual property has not been protected properly, such as by filing an appropriate application or perhaps by storing the data in a highly secure repository, this could be a dealbreaker. After all, data that is not protected may have already been compromised, and thus there is likely immediate and irreversible value erosion.
4. Delays and Feet Dragging
When it comes to closing deals, time is always of the essence. In some cases, there may be unavoidable delays, but more often than not the delays that occur are due to human error. However, there are some business owners who are sentimental about the companies they have created, allowing emotions to get in the way of the end goal. Throughout the sale of a business, everyone in the company has to be on top of their game to ensure that all issues are attended to in a timely fashion and simply cannot allow their feelings or pride to disrupt a good thing.