It is common for owners heading into a sales process to ask about the chances of success.
The question reveals the natural nervousness everyone feels when we head down an uncertain path.
We have a great track record once a deal gets to letter of intent because we stay on top of details and are diligent with potential problems. But there are things that do get in the way.
As you consider whether now “is the time” to sell, consider the following list of common deal killers and consider what we might do to avoid it from getting in the way of your business getting into the “done deal” category.
Problem 1: Time
“Time kills all deals” is an old saying in the industry. The longer it takes to complete negotiations and due diligence, the more likely a deal is to fail. Deal fatigue is real, and small issues that weren’t a problem at the start can become sticking points as a transaction drags on.
Avoid deal fatigue through preparation and focus. Organize financials and other business information before you go to market, and work with us to give your deal the attention it requires.
We assemble an information data room early to head off potential delays later on. It takes time early, rather than holding things up later.
Problem 2: Inexperienced advisors
When it’s time to sell your business, it is a good idea to have advisors with experience completing deals. If they lack experience with a deal process, ask them to work with us collaboratively. One of our key roles is to drive the process.
Completing a deal results in a lot of questions, and they need to be answered in a timely way to keep momentum going. Sometimes a simple request can seem like a challenge or a threat. This can result in a fight when the only thing needed was information.
Problem 3: Surprises in Diligence
A common saying is to “go ugly early.” Another way of saying it is to treat the buyer the way you would want to be treated.
This translates into being complete and timely with disclosures, even things that you wish weren’t part of the record. Examples are, a personnel issue that cost thousands to settle; a safety complaint that was dealt with in the past. You get the idea.
Hiding something you fear will be a problem is not the right approach. A surprise late in the process builds suspicion of “what else” hasn’t been shared, and that can be a real problem. That can cause the buyer to back out.
Problem 4: Unassignable contracts
To the best of your ability, ensure contracts (e.g., leases, employee non-compete agreements, customer agreements), are assignable in a sale. Third-party contract negotiations can eliminate confidentiality and create an opportunity for someone to highjack your deal – demanding unreasonable terms or conditions because they know your sale hinges on their agreement.
Problem 5: Fear of the Unknown
Before getting to a closing, make sure you know what it will be like not to be in charge any longer. Seller remorse can be avoided by running through an exit planning process that involves your spouse and family.
Owning a company is demanding, and the years of effort makes it part of your identity. Fear of losing that sense of purpose can result in irrational decisions being made. Better to deal with it before the final phase of a sale than to develop “cold feet” and kill the deal in the 11th hour.
Exit planning experts can be helpful. Jane Johnson at Business Transition Academy has a virtual program that walks owners through the process. You should be moving towards something meaningful, not just giving up work.
We can learn from the mistakes of others. That’s why we have outlined several problems that we have encountered. Avoiding these “deal killers” increases your chance of a successful transition.