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Top 5 Deal Killers and How to Avoid Them

Buying

It’s an all too familiar storyline in the deal-making process; after months of hard work, the deal falls apart. For the most part, the cause is solely the fault of the parties involved, usually the seller, but sometimes external factors can increase the risk of a deal falling through.

The really frustrating and unfortunate thing about these negative outcomes is that many can be avoided with thorough preparation, patience, and a dose of common sense. At they’re core, deals are simply an interaction between two (or more) parties; therefore empathy, understanding, sensibility, and communication is key. This article addresses what we believe are the top 5 deal killers and offers up a few suggestions on how to avoid them.

1. Disorganization/ Poor Preparation

First off, ask yourself if are you mentally prepared for, and committed to, the process. Every deal goes through peaks and valleys; understanding this and being committed to the process should be your first litmus test.

Next, it is crucial to be organized and have all of your documentation compiled to ensure that, if/when you have an interested party, you can provide them with what they want to see. (See Deal Killer #3)

Similarly to how there are many buyers on the market, there are also many businesses comparable to yours up for sale. Being organized and prepared (having clear financial statements, tax returns, a detailed list of business expenses, etc.) can truly set you apart and give your business a competitive advantage on the market.

For more on this, please send us an email at hello@tresle.com and request a copy of our Due Diligence Checklist.

2. Unrealistic Expectations/ Stubborn Inflexibility

When speaking with business owners who are considering selling, it is common to hear things like “I know someone that sold their company in 30 days” or "My friends sold their business for X price, I can get that!"

Point being, sellers often have unrealistic expectations of the value of the company. We don’t blame them- who wouldn't want a maximum return on their investment?

However, getting started with a realistic valuation can help you start off on the right foot. Your business can have the highest price tag in the world, but if you don’t get any traction with buyers, what good does that do? Having a fair market valuation drives traction and traction closes deals.

Being stubborn and inflexible can cause buyers to back away from a deal and you will come off as someone who is difficult to work with and deeply misinformed. Simply put, people don’t want to waste time on a deal that is never going to get done.

Related: Setting Achievable Goals When Selling Your Business

3. Slow Responses

Time delays kill all deals. The longer a seller takes to respond to a buyer's questions, the more likely it is that the buyer will lose interest. A slow response time from the seller indicates that the seller is likely not serious, too busy to communicate, or disorganized- all of which do not push deals to the closing stages.

How can you avoid this issue? Simple: be responsive. If you are not seriously invested in the selling process, wait until you are ready. If you are too busy, hire staff to help alleviate the pressure. If you are not organized, put in the time to get your documentation in order. Being engaged and reliable with a prospective buyer can dramatically increase your chances of getting the deal done.

4. Due Diligence Surprises

In many areas of life, surprises are great! However, when you are selling or acquiring a business, surprises are not fun and tend to kill deals. If you have issues or problems you feel the need to ‘hide’, rest assured that the other party will find out about them and the consequences will be felt.

Buyers are allergic to risk, and therefore hate surprises during the due diligence process. Surprises can cause buyers to delay the process while they decide how to react. In response, they may reduce the price and terms, or even back out of the deal entirely. At the very least, unwanted surprises will create a lack of trust, which can hurt the deal in many ways later on in the process.

If something comes up in the due diligence process, it is important to disclose the issue to the buyer as soon as possible. A lot of the time, the issue(s) can be overcome simply through full disclosure as well as offering up a reasonable and contextual explanation. If, however, the prospective buyer discovers the problem without the selling party telling them, the deal will die.

So when in doubt, disclose everything and avoid surprises in a deal at all costs.

Related: Top 4 Mistakes to Avoid When Selling Your Business

5. Buyer Issues

While the majority of deal-killing issues appear on the sell side, sometimes problems come up with the buyer. A few examples include: the buyer’s business declining, not have financing in place, not being pre-qualified for a loan (sadly, this happens more often than you’d think), and a plethora of other outside reasons.

Unfortunately, in these cases, there’s not much a seller can do except hold the prospective buyer to the same standards that they would expect from you. In other words, if the buyer expects you to disclose information about your business, you should ensure that they are legitimate buyers and that they have the appropriate funds to move forward with the transaction. If not, prepare for the possibility of wasting your time.

One way to pick up on whether the buyer is qualified and serious about the deal is to watch for the buyer that starts to drag their feet. In most cases, if a buyer is not moving at a solid rate to complete a deal, there is something going on behind the scenes.

Related: Buying a Business? Here’s How to Stand Out to Any Seller

In Summary

While we believe that these are the top 5 deal killers, there are of course a wide variety of other reasons that a deal may fall through.

At the end of the day, every business transaction requires a significant amount of time and dedication from all participants. Although there are bound to be bumps along the way, there are always ways to circumvent the major deal killers. In the end, organization, communication, and having a willingness to compromise should better your chances of achieving a closed deal.