Cashing Out - Part 4 - Closing the Sale

[Stacy L. Alario, FCBI]

Cashing Out – Part 4 – Closing the Sale

Why do business sales fall apart? In many cases, the buyer and the seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and once understood, many of the worst "deal-crashers" can be avoided.

Understanding is the key word. Both the buyer and the seller must develop an awareness of what the sale involves – such awareness should include facing potential problems before they swell into floodwaters and “sink” the sale.

What keeps a sale from closing successfully? In a survey of business brokers across the United States, similar reasons were cited so often that a pattern of casualty began to emerge. The following is a compilation of situations and factors affecting the sale of a business.

1. The seller is not up-front concerning problems in the business.

2. The buyer has second thoughts about the price. In some cases, the buyer agrees on a price, only to discover that the business will not, in his opinion, support the price. Whether this “discovery” is based on gut- reaction or a second look at the figures, it impacts seriously on the transaction at hand. It is of prime importance that the business be fairly priced right from the beginning. Once that price has been established, the documentation must support the seller’s claims so that buyers can see the “real” facts for themselves.

3. Both the buyer and seller become impatient. During the course of the selling process, it is easy – in the case of both parties- for impatience to set in. Buyers continue to want increasing varieties of information, and sellers begin to grow weary of it all. Both sides need to understand that the closing process takes time. However, it should not take so much time that the agreement is endangered. It is important that both parties, if they are using outside professionals, should use only those knowledgeable in the business closing process.

4. Sometimes the buyer and the seller are not (or never were) in agreement. How does this situation happen? Unfortunately, there are business sale transactions wherein the buyer and the seller realize belatedly that they have not been in agreement all along – they just thought they were. Cases of communication failure are often fatal to the successful closing. A professional business broker is skilled in making sure that both sides know exactly what the agreement entails – and can reduce the chance that such misunderstandings will occur.

5. In all too many instances, the seller does not really want to sell the business! Selling a business has many emotional ramifications because the business often represents the seller’s life work. Therefore, it is important that prospective sellers make a firm decision to sell prior to going to market with the business. If there are doubts, these should be overcome or resolved. Some sellers enter the marketplace just to "test the waters" – to see if they could get their “price” – should they ever get really serious. This type of seller is the misfortune of brokers and buyers alike. Brokers generally can tell when they encounter the “casual” category (as opposed to “serious”) seller. However, an inexperienced buyer may not recognize the difference until it is too late and after much expense. A willing seller is a good seller.

6. The buyer really does not want to buy! What is true for the mixed-emotion seller can be true for a buyer as well. Buyers can enter the sale process full of excitement and optimism, and then begin to get second thoughts as the closing draws nearer. This is especially true today, with many displaced corporate executives and employment layoffs, many buyers are entering the market. Buying an owning a business is still the American dream- and for many it becomes a profitable reality. However, the entrepreneurial reality also includes risk, a lot of hard work, and long intense hours. Sometimes this is too much reality for a prospective buyer to handle.

7. And none of the above. While the situations listed are the main reasons why many transactions fall apart, there can still be unforeseen problems beyond anyone’s control – such as “Acts of God” that can drastically change the situation, or even environmental problems. Nonetheless, many potential “deal-breakers” can be handled, or dealt with prior to the marketing of the business, to help insure that the sale will close successfully.

Finally, remember these components in working toward the success of the business sale: good chemistry between all parties involved; a mutual understanding of the agreement; a mutual understanding of the emotions of both the buyer and seller; and the belief – on the part of both parties – that they are involved in a good transaction. Add to this equation a good ethical business broker, who can provide vital services for both parties, and who can act as the “glue” for holding together the pieces and often “the hands,” throughout this sometimes trying, but extremely rewarding process.

Stacy L. Alario, FCBI and American Business Brokerage are a Florida licensed real estate firm with over thirty years of experience helping buyers and sellers to achieve their dreams and goals. For a confidential appointment to discuss yours, please call [phone] or email Stacy at [e-mail] www.americanbusinessbrokerage.org