Many factors can bog down or kill the sale of a business.
However, once the purchase price and deal structure are ironed out, time is the most likely reason that a business sale transaction may fail. The saying “time kills deals” is certainly true. In this week alone we lost two deals because the deals dragged out and were killed by the undue delay.
Time can breed frustration and fatigue. As a potential sale drags on, the owner is left in an uncomfortable state of flux. The business owners, used to making a variety of decisions every day, become uncomfortable making decisions because they feel that soon the business will not belong to them. The buyers may also become frustrated as they switch from looking for a business to buy to getting ready to start in their new venture. As time goes on, fees of lenders, attorneys and accountants can begin to mount. The deal can reach the point when one party declares: “It just wasn’t meant to be.” When the deal dies, almost everybody loses.
National figures indicate that the average business sale takes between nine to 12 months from start to close. Once a contract or letter of intent (LOI) has been signed, the final due diligence and closing process usually takes 30 to 90 days, and sometimes even longer.
How do you keep the sales process moving?
Your business intermediary should be able to give you the time, attention, energy and resources necessary to focus on your deal.
Be sure to ask your business broker or intermediary about his or her organization’s work on closing details. You want to be sure that you are working with someone who can cover minute details, looking weeks and months ahead in the sale process. Experienced transaction advisers will know what to expect and should plan accordingly.
They should assist in obtaining appraisals, ordering environmental investigations, transferring licenses, title work and many other details need to be handled properly and in a timely fashion to be able to close a transaction. For the best possible results, you want to work with someone who knows the proper sequence of events so there aren’t any unnecessary delays. There’s a lot to coordinate and missing just one detail can cause a delay in closing the deal.
From your business broker to your attorney and accountant, you want to consider hiring specialists in business transitions.
Inexperienced advisers tend to be overly conservative to protect their liability. That can drag out the negotiation process and may cause frustration for the parties involved. If you are serious about selling your business, you really don’t have the time or money to pay to educate your advisers on the mergers and acquisitions process.
These advisers should help in the transition and not be a hindrance to completing the deal. Once the deal terms are agreed to you want advisers that understand your wish to sell and will represent your interest but will also keep in mind your desire to get the closing completed.
Your adviser should spend the time packaging the business up front. A comprehensive business review can be developed that answers 80 to 90 percent of the standard questions a potential buyer will have. This helps both the buyer and the lender make decisions more quickly. Disclose any perceived issues early in the process. A buyer can get past potential negative issues that were disclosed early. If they find about late in the game it will undoubtedly kill the deal.
No matter how much work is done up front inevitably the buyer and/or lender will still have a range of questions that need to be addressed during due diligence. Get the list in writing and work with the adviser to complete the list as quickly as possible. Remember time kills deals and speed favors completion. Get what you can to the parties quickly even if you have to piecemeal the information. People understand that information gathering can take time.
Be prepared to move forward emotionally and financially. A seller will sometimes thwart the sale because they haven’t seriously considered their future plans or their financial expectations are out of line. A professional adviser should be honest in what he or she believes the market can bear and should not let you go to market with an unreasonable asking price.
Think about what you will do after you sell the business, many business owners have never done anything else and have a lot tied up emotionally in their business. Discuss this with your spouse, it will be much easier to let go of your business if you have a good plan for life after the sale and have a supportive spouse with you in your decision.
Finally, your intermediary should screen all buyers to ensure they are serious about the potential acquisition and have the financial means to move forward with a transaction. You don’t want to waste time with buyers who simply can’t afford a purchase.
Selling a business can certainly be an emotional ride. It’s a time to work with deal makers and specialists who will help to minimize the stress and help everyone move forward toward the timely completion of the business sale.