7 mistakes that can kill a business deal

Selling a business is a monumental milestone that few people get the privilege of doing.

Many sellers approach the process with excitement and optimism yet fail to recognize the many pitfalls that can derail even the most promising of negotiations. Understanding what can kill a deal is crucial for anyone navigating this landscape effectively.

This article will delve into seven key pitfalls that can ultimately lead to a deal falling through. By being aware of these challenges and taking proactive steps to address them, sellers can significantly enhance their chances of achieving a successful business transaction.

• Lack of preparation. Sellers who fail to organize their financial records, to resolve outstanding legal, tax or environmental issues, or to streamline operations risk creating red flags for potential buyers during due diligence. A well-prepared business instills confidence in buyers and can significantly accelerate the transaction process, as well as increase the value of the business.
• Overvaluation. Setting an unrealistic asking price can immediately turn away buyers. Overvaluation often stems from emotional ties or a misunderstanding of market conditions. Sellers should rely on professional valuation experts to set a fair price that reflects both the company’s current performance and market realities.
• Emotional attachment. For many owners, their business is deeply personal, which can lead to emotional decision-making during negotiations. This attachment can result in stubbornness on terms or an unwillingness to compromise. Recognizing and managing this emotional component is critical to maintaining a clear-headed approach throughout the process.
• Inadequate advice. Sellers who forgo experienced advisers often struggle to close deals due to the complexities and time involved. Legal and financial advisers provide critical support by conducting due diligence, negotiating terms, ensuring compliance and optimizing the deal for tax benefits. Engaging professionals early helps streamline the process and safeguards the seller’s interests.
• Failure to qualify buyers. Not all buyers are created equal, and failing to vet them properly can lead to wasted time and resources. The current market is increasingly attracting inexperienced buyers who are eager to break into the acquisition space but often lack the financial capacity or operational knowledge needed to follow through on a deal. Sellers should establish clear criteria for buyer qualifications and thoroughly evaluate potential buyers to ensure they are serious, capable and a good fit for the transaction.
• Timing. Timing can make or break a deal, as market conditions, economic trends and industry dynamics all play a role in determining buyer interest. Selling during a downturn or when the business is underperforming can significantly reduce its value. Sellers should aim to time the sale strategically, ideally during periods of growth and favorable market conditions.
• Shared vision and values. Cultural misalignment between the buyer and seller can sow distrust and uncertainty, especially if the buyer plans to retain the existing team. Ensuring alignment on core values and future goals is vital to building trust and confidence in the transition. Open discussions about the company’s mission and vision can help bridge any gaps and solidify the deal.

Selling a small- to medium-sized business is not just a financial transaction – it’s a complex process that requires careful planning, realistic expectations and a clear understanding of potential obstacles. By addressing these pitfalls, sellers can position themselves for a smoother and more successful deal.

Even if you don’t plan to sell your business in the immediate future, the time to start preparing is now. The stakes are high, but with proper guidance and a proactive mindset, sellers can avoid deal killers and create a foundation for a transaction that benefits all parties involved. Preparation and perspective truly are everything.

A member of Cetane Associates’ transaction team, Dalton Brooks contributes his law expertise to the financial advisory firm’s mergers and acquisitions deals. He holds a Bachelor of Science degree from Texas A&M University and a law degree from Texas Tech University. Contact Brooks at dbrooks@cetane.com.

Featured hompage image: Cecilie_Arcurs/E+/Getty Images