The Business Sale: Roadblocks to Closing

Selling your business involves many moving parts. You’ve got the buyer, business partners, employees, vendors and suppliers, bankers, attorneys, and your own emotions to contend with. With so many people involved in the sale of your business, it’s easy to understand why it doesn’t always go as smoothly as you’d like it to. Today, I’d like to take a look at some of the many roadblocks to closing the deal. When it comes to selling your business, there are many things beyond your control. Let’s take a look at the business sale and the roadblocks that could prevent you from closing.

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TOPIC INDEX:

• – Roadblocks to Closing
• – Attorneys
• – Bankers
• – Employees
• – Customers
• – The Seller and the Buyer

How Roadblocks Form During a Business Sale

Over the past year, I’ve worked with a dozen, or so, business owners that are ready to sell their businesses. Many of them encountered various roadblocks as they navigated the business sale process. Now, this is familiar territory to me, as I learned this lesson very early in my career. Back when I first entered the financial industry, the landscape was very different than it is today. Fee-only advisors were almost unheard of and I had to learn and sell insurance as part of my duties.

I’ve said this many times before, but I hate to sell things. I enjoy teaching and providing information to help people make informed decisions. But, at that time, selling various insurances was part of the job. I remember having a buddy who was working on a really big case. The client was ready to make the deal but there were around a dozen people who were presenting roadblocks to him closing the deal. They didn’t care that it was keeping him from being paid. Nor, did they care that the client wasn’t getting what they wanted. Therefore, my friend had to circumvent each one of the roadblocks they set up along the way to his sale.

Sometimes, this is what happens when you’re trying to sell a business. The buyer and seller agree to make the deal and then someone who is only loosely connected to the deal throws a wrench in the whole thing. Candidly, this happens more often than you would think it does. So, what are some of the roadblocks that business owners run into?

Roadblock #1. Attorneys

Attorneys can be a business owner’s best friend or their worst nightmare. I often compare them to chainsaws. They must be razor-sharp and powerful. But you also have to use an attorney with great care. If you don’t, they could cut you. I’m kidding, of course, but attorneys could harm your business sale if you don’t direct them in the right way. Unless the buyer and seller direct their attorneys to “get the deal done,” they will eventually taint the taste of the deal for one party or the other.

I’ve seen this in the past six months. The attorneys began arguing over periods and commas until the buyer and seller no longer viewed the deal as a good thing. Instead, they went into preservation mode, causing them to walk away. On the buyer’s side, the attorney is working to skew the deal in their client’s favor. They’re going to look for skeletons in the seller’s closet and use wording that benefits the buyer to the detriment of the seller.

On the other hand, the seller’s attorney is going to work to cover up any skeletons that might be hiding in their closet. They could review your organizational documents and fill in whatever’s missing. Likewise, they’ll review leases, employee agreements, vendor agreements, franchise agreements, etc. Although this is done to expedite the due diligence process, there’s a potential for roadblocks here. So, how do you mitigate the impact attorneys have on the sale? Work on value growth BEFORE you reach this moment. The more company-specific risk you remove from your business, the more valuable it becomes, and the less the attorneys will have to squabble over. Sometimes, you just have to say, “Enough’s enough,” and proceed with the deal.

Roadblock #2. Bankers

Where attorneys approach your deal with the goal of protecting your interests, bankers view it as one who has a vested interest. They want to know the loan can be paid back. I actually worked with a CPA to build a pro forma for a business that was selling, not too long ago. We took a conservative approach and checked and rechecked the numbers. By the end of the year, we found that we were very close in our projections. So, we took it to the bank. They sent back a list of questions, asking why we made the assumptions we had made. After answering the questions, they loved the deal.

However, once we received a letter of intent, the bank began reviewing the buyer’s finances. Unfortunately, the prospective buyer had some credit issues. So, even though the bank was on board with the deal on the seller’s side, we faced a roadblock because of the buyer’s financial history. This sort of thing happens all the time. I’ve also seen instances where the attorneys sign off on a deal, the buyer and seller both pass the bank’s “sniff test,” and then the buyer’s lending falls through. In this case, the business owner had to offer a seller carry which I’m not a big fan of.

Roadblock #3. Employees

This one shouldn’t really be a surprise because nobody likes change. But oftentimes, business owners are blindsided when their team creates a roadblock to closing the business sale. This is because they often take the position of, “Well, the team should just fall in line because I’m the owner and this is what I’ve decided to do.” But the thing is, life just doesn’t work like that. 

As the business owner, you’re contending with your team’s fight or flight response. Self-preservation is at play. Therefore, you must identify and express how the transition will benefit each individual employee. Additionally, you’re trying to position them for a transition that could take weeks, months, or even years to complete. So, you must handle this with extreme care. If your team is unhappy and leaves, that presents a huge roadblock.

Roadblock #4. Customers

Like your employees, your business’s customers will likely respond to this change from a posture of self-preservation. They’re going to want to know how the sale and transfer of your business will impact them. Some industries even require clients to sign-off on a transition before it can take place. Also like your employees, a mass exodus of your clientele would be a major roadblock to closing. After all, what buyer wants a business with no customers?

The best course of action to overcome — or prevent — roadblocks from your employees and customers is to be open and honest with them. Explain how the change can benefit them and be willing to take questions. The more you can ease their minds beforehand, the less likely they are to cause a disruption to the process.

Roadblock #5. The Seller and The Buyer

Perhaps one of the biggest roadblocks to closing is you, the seller, and the buyer. From the seller’s perspective, you end up causing atrophy because you take your eyes off of the fact that the company has to produce revenue. I actually write about this in my book, The Ultimate Sale. Buyers love to see the business owner watch the business go down during the transition. During this time, they’re going to be pushing and pulling. Between the two of you, there will be many different emotions and objections.

At the end of the day, the buyer and the seller are the ones that matter. Everyone else is there to support the deal and the business. But if the buyer and seller can’t agree, there can be no consummation. When it comes right down to it, you and the buyer must come to an agreement for the deal to be made.

Wrapping Up…

Friends, I wanted to share these things with you because I’ve seen so many business owners not anticipate this transaction. Selling a business is hard. If you’ve ever sold a home, then you know how difficult that can be. Selling a business is even more difficult. There are many roadblocks that can pop up along the way. So, if you’re considering selling your business in the next 10 years, you’re going to need a coach. You need an exit planner that prepares you, your team, and your clients for the sale.

Life is hard. But life is good. Selling your business can be frustrating. But with a little help from a qualified exit planning advisor, and proper preparation, you can make it at least financially simple. Let’s go out and make it a great day!

Are you considering selling your business? It’s never too early to begin working on your exit plan. Reach out to our team. Our trusted advisors could help you avoid some of the roadblocks to closing the biggest sale of your life.