Skip To The Main Content

Why deals break down – and how to close the deal

sponsored by

businesses-for-sale-solid-logo
deal_listing

Deals break down for a multitude of reasons.

The sales process can be long and frustrating so the last thing you need is for the deal to collapse tantalizingly close to completion – especially for a hitch that could have been remedied if only you’d done your homework on the buyer or considered their perspective.

Of course, a perfectly credible buyer may withdraw for reasons entirely beyond your control – but you can at least reduce the risk of a sale collapsing.

Philip de Lisle, an entrepreneur who has sold several businesses, says deals break down for the following three reasons more than any others.

The numbers don’t stack up

“In other words,” explains de Lisle, “when the potential buyer gets into due diligence, and the financials that you’ve so carefully prepared are picked over by the accountants like vultures over a carcass, the consensus on their side is that either your historic figures are wrong – and you’d be amazed how many accountants file accounts with Companies House which are wrong – or they don’t believe your forecasts.”

 

Having done the due diligence the buyer ‘chips’ the price too much

The second hurdle – when the buyer tests your resolve at the last minute by reducing their offer – is hugely frustrating and requires a simple strategy.

“This one only you can deal with,” says de Lisle. “Before you enter negotiations make sure that you have a “red line’ figure that is your absolute bottom acceptance price, and make sure that you tell your negotiating team or business broker what it is.”

Deal fatigue

Buying a business requires patience as well as an ability to multitask running a business with managing the process – albeit possibly with professional help – of selling it.

It’s hardly surprising, then, that many people simply decide they’ve had enough.

“Most deals take about nine months to complete with around 4,000 emails [being sent between the parties] and so many hours and hours of precious time [invested] that people lose the will to live and walk away.”

But you are not simply helpless in the face of difficult or impatient buyers. De Lisle, who has sold many of his own businesses successfully, offers some tips:

Tips from someone who’s been there, done that: Philip de Lisle – MD, Enhancing Clarity

 

1. Get your numbers right from the start and make sure you know then backwards and inside out.

2. Be clear from the outset with your team what your walk-away price is so that timewasters can be weeded out before you even know about them.

3. Make sure you always answer emails and return calls in a timely manner so you are not the one delaying things.

Philip is a serial entrepreneur and business seller as well as non-exec chairman, business mentor and coach, facilitator, speaker and author. Enhancing Clarity is a leading provider of executive mentoring and coaching that transforms how people perform. 



Top tips from a BTA: Gareth Smyth, group managing director, Hilton Smythe

1. Check the buyer has the cash or at least the deposit or equity to obtain finance. As a rough rule of thumb, a purchaser will need approximately 30% deposit for freehold businesses and 50% or more for leasehold. 

If you are selling for under £25k, a personal loan may be on the cards. Either way, ask for proof. 

You’re going to incur a lot of cost and wasted time if you don’t and it turns out the buyer is not good for the money. 

2. Check their background; have they been in the trade before? If not, what experience do they have? 

If your business is leasehold, the landlord is probably going to want the new tenant to have business experience, or they may decide not to grant them a lease, which ultimately puts a brick wall in the way of any sale. 



If you are freehold and the buyer requires finance, the banks are likely going to want previous experience, or they may ask the buyer to provide a bigger deposit.

Smyth also urges sellers to resist complacency and maintain focus, even as the deal nears completion.

“Remember, even though you have shook hands on the deal and everyone is excited, the deal is not complete until the formalities have been addressed, usually through solicitors, and the money has changed hands,” he says.

Established in 2011 Bolton-based Hilton Smythe has grown rapidly and offers “a forward thinking, innovative approach” to the “prompt, effortless purchase or sale of your business.” Gareth Smyth, group managing director at Hilton Smythe, has overseen countless business sales.