small business owner - There are reasons this happens, and, once

It's a common scenario: a buyer and seller reach a tentative agreement to sell a small business, only for the deal to fall apart before closing. While frustrating, these breakdowns often stem from predictable issues that, once understood, can be avoided. Both parties need a clear awareness of what a business sale entails, including proactively addressing potential problems before they derail the entire process.

Why Do Small Business Sales Fall Apart?

A survey of business brokers across the United States revealed recurring reasons why sales fail to close successfully. Understanding these common pitfalls can help both buyers and sellers navigate the process more effectively.

The Seller Hides Problems

When a small business owner isn't transparent about the business's challenges, those issues don't disappear. They inevitably surface later, often after a preliminary agreement has been reached. This can cause the buyer to lose confidence, as nobody appreciates unexpected surprises, leading the deal to collapse. While it might seem daunting, sellers must be as open about their business's drawbacks as they are about its strengths. Business brokers consistently emphasize that most problems can be managed if they are known at the outset of the selling process.

The Buyer Doubts the Price

Sometimes, a buyer agrees to a price only to later conclude that the business cannot, in their opinion, justify that valuation. Whether this realization comes from a gut feeling or a closer look at the financial figures, it significantly impacts the transaction. A deal is in serious jeopardy when the seller demands more than the buyer believes the business is worth. It's crucial for the business to be priced fairly. Once a price is established, comprehensive documentation must support the seller's claims, allowing buyers to verify the facts for themselves.

Impatience from Both Sides

During the selling process, it's easy for both buyers and sellers to grow impatient. Buyers may continuously request more information, while sellers become weary of providing it. Both parties need to understand that the closing process takes time, but it shouldn't drag on to the point of endangering the deal. If using outside professionals, ensure they are experienced in business closing processes. A professional business broker can often recommend competent professionals in a given area. While it's tempting to use a familiar attorney or accountant, they may not have the specific experience needed to bring a business sale to a successful conclusion.

Misunderstandings Between Parties

Unfortunately, some business sale transactions fail because the buyer and seller belatedly realize they were never truly in agreement, only thinking they were. Failures in communication are often fatal to a successful closing. A professional business broker is skilled at ensuring both sides fully understand the deal's terms, significantly reducing the chance of such misunderstandings.

The Seller Isn't Truly Ready to Sell

In many cases, the seller doesn't genuinely want to sell their business. The idea might have seemed good initially, but as the deal approaches the finish line, their desire to sell fades. Selling a business often carries significant emotional weight, as it can represent a seller's life's work. Therefore, it's essential for prospective sellers to make a firm decision to sell before putting their business on the market. Any doubts should be addressed and resolved beforehand. Some sellers enter the market merely to "test the waters" or see if they can get their desired price without serious intent. This type of seller can be frustrating for both brokers and serious buyers. While experienced business brokers can often identify casual sellers, an inexperienced buyer might not recognize the difference until it's too late. Most business brokers agree that a truly willing seller is a good seller.

The Buyer Isn't Truly Ready to Buy

Just as a seller can have mixed emotions, a buyer can also experience a change of heart. Buyers might enter the sale process with excitement and optimism, only to hesitate as they get closer to committing. This is particularly true for individuals transitioning from corporate roles into entrepreneurship. While buying and owning a business is often seen as an American dream and can become a profitable reality, the entrepreneurial path also involves risk, hard work, and long hours. Sometimes, this reality proves to be more than a prospective buyer is prepared to handle.

Unforeseen Circumstances

While the situations detailed above are common reasons for deals falling apart, some problems are beyond anyone's control, such as natural disasters or unexpected environmental issues. However, many potential deal-breakers can be identified and addressed before the business is even marketed, helping to ensure a successful sale.

Key Components for a Successful Sale

To increase the likelihood of a successful business sale, keep these essential components in mind: