There’s an adage that “Time Kills All Deals”. As business brokers, we’ve found this adage to be absolutely accurate in any size transaction. Over the years, as we worked with business owners who were trying to sell their business, we found they often failed to grasp the importance of momentum in getting a deal finalized.
Whether you are buying a business or selling a business, once you’ve decided to move forward with a deal, it is in your best interest to get it finalized as quickly as possible. We’ve all heard of Murphy’s Law: Anything that can go wrong, will go wrong. During the transaction process, it’s easy for both buyer and seller of a business to grow impatient. Buyers continue to want increasing amounts of information, and sellers grow weary of it all.
The seller has probably already entertained several meetings with potential buyers and has answered hundreds of questions. All of this while running a business and spending countless hours focused on the sale process. Both sides need to understand that the transaction and closing process takes time. However, it shouldn’t take so much time that the deal becomes endangered. As time goes by, something will happen that causes the deal to collapse, no matter how motivated both parties are.
Below are 15 factors that can extend the timeline between Letter of Intent and Closing:
- A new advisor, accountant, attorney, who is relied upon does not like the deal.
- Loss of a key customer/client that makes the business no longer attractive.
- A modification in the way the business is being operated. This may cause the buyer to perceive the seller is not operating it in good faith until closing.
- Turnover of staff that causes a loss of confidence in the ability to manage the business post-closing.
- Litigation against either party that’s not linked to the transaction but causes a lack of interest in finalizing the deal.
- An unexpected substantial increase in business for the seller causing price expectations to increase and therefore reducing the desire to sell.
- An unforeseen change in the market.
- Death or disability of a principal in either party.
- A divorce of a principal in one of the parties.
- A business or new technology emerges that threatens the business being acquired with obsolescence.
- An unexpected personal financial hardship of either the buyer or seller;
- A new law or regulatory modification that creates uncertainty or diminishes the appeal of the business.
- The buyer or seller becomes aware of another, more attractive opportunity, that causes a loss of interest in completing a deal.
- A significant change in inventory, accounts receivable or accounts payable, which not only changes the nature of the transaction, but also raises red flags regarding the strength of the business.
- A buyer or seller partnership or stockholder dispute.
In any transaction, each party has the power to control the timeline. If you believe, like we do, that time kills deals, then we suggest the following:
- Respond to all negotiation points within 24 hours after they are received. If approval is needed from a party not accessible the same day, communicate the reason for the delay to the other side.
- Respond to requests for information within a very timely manner. If it should take two days to provide the requested information and it takes two weeks, you have just increased the likelihood of failure.
- If the negotiations are going back and forth in more than three emails on the same point, pick up the telephone, schedule a conference call or an in-person meeting to discuss the point in person.
- Never be the cause of a slow-moving deal.
- If a participant in the transaction has an upcoming vacation or planned day off, communicate this to the other side so you can push to get key elements complete before or during their absence.
- Never let it be about winning or just being difficult. Always be sure that you are debating a point that has sound business logic behind it.
- Negotiate without being hateful. Being spiteful clouds good judgment and makes it tougher to move the negotiations to resolution.
Some business buyers and sellers have the attitude of “the deal will get done in its own natural time”. This philosophy may be great in many aspects of life, or it may be acceptable if you look at things from the more philosophical standpoint of “if it’s meant to be it will happen, if not, then it won’t”. However, if you are committed to getting a deal done, it’s a risky and irresponsible attitude. Our advice: once you’ve decided to do a deal, do everything you can to complete it as quickly as possible.
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