There can be a variety of reasons why a business does not successfully make it out of escrow. Some deals fall apart because of the buyer, some because of the seller and, regrettably, some because of a third party.
In all cases, if there is not sincere motivation on the part of both the buyer and the seller, the likelihood the deal will fail increases dramatically. Like many negotiations in life, business transactions require a willingness to consider the other party’s concerns.
If motivation is absent in this process, overcoming the many complexities involved in the transaction will be impossible.
Regarding sellers, there can be numerous reasons why their motivations can change. I’ve seen a deal unravel based on the expectation that a new customer was supposed to sign a significant contract. In this example, the contract never materialized. Too bad for the seller!
I’ve seen situations where sellers are disappointed with the tax consequences they will face after the sale. In these cases, if the seller were really motivated, they would be prepared to carry a promissory note, which would significantly diminish this concern.
I’ve also seen situations in which the buyer has accidentally misrepresented the financial condition of the business. With motivated parties, the deal gets renegotiated. With unmotivated parties, the deal dies.
Regarding buyers, their motivations can change due to the sudden realization that they’re going to be paying a significant down payment. Their motivation to take the necessary “leap of faith” to go through with the deal disappears along with their courage.
I’ve also seen situations where a buyer experiences an unexpected financial setback, which impacts their ability to meet their financial obligation as part of their deal. For example, a large deal recently fell apart when the buyer was unexpectedly served divorce papers.
Outside influences can also hamper the successful transfer of a business. If a landlord becomes difficult to deal with, it can really put a strain on the buyer’s motivations. This is what happened a few months ago when a landlord wanted to significantly alter a long-standing lease of a buyer who wouldn’t stand for it.
Sometimes, buyers and/or sellers might receive overly aggressive advice from outside advisors. Advisors should always remember to work toward the goal of putting the deal together, not erecting roadblocks to derail it.
This past spring, in a couple of deals I was brokering, lawyers got involved. Fortunately, they remembered their clients’ motivations and did an excellent job ensuring all interests were protected.
Unfortunately, I’ve also seen the chemistry between the principals in a deal broken due to overzealous advice from a third party. Guess what happened to those deals?
It’s important for buyer and sellers to have advisors who are deal makers and not deal breakers.
I recently had a seller with several advisors sharing in advice. The sellers lawyer wanted to add language, the banker wanted significant collateral, and the accountant wanted more information about the buyer than a bank would ask for.
It takes a team effort on all sides to make the deal work.
Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.
