Being Aware of Deal Breakers in a Business Sale - VR Business Sales Blog

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Friday, January 27, 2012

Being Aware of Deal Breakers in a Business Sale

JoAnn Lombardi
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When the time is approaching when the business sale is near, both buyers and sellers can jump the gun, resulting in the situation quickly moving south. Whether it’s an issue with the closing documents being done at escrow, question of funds being transferred, incorrect inventory count or use of goodwill or intellectual property, a deal can abruptly come to a stop if either party isn’t careful.
At VR, we advise you on paying attention to every step of the process. There are a few factors that can cause a deal to collapse, which you should know.
Undisclosed Material Surfaces
This can happen when the buyer is performing due diligence or just prior to closing. It’s not uncommon for the seller to lose some major accounts, have a product recall or have an issue with the landlord wanting to change the name on the lease. That’s why each VR business intermediary facilitates the sale process from start to finish ensuring no surprises like this occur.
Asking for Additional/No Collateral
What takes place occasionally at the time of the purchase and sale agreement is that either the buyer or the seller can demand further terms. The buyer could ask for their note to be uncollateralized and demand a hefty escrow account or a large list of warranties and stipulations. The seller could ask for additional collateral on the buyer’s side if seller financing is involved. We will help resolve any financial issues early on so that this doesn’t become a problem at the time of close.
Lack of Buyer and Seller Rapport
It’s important that the buyer and seller are able to be on the same page, and have a rapport. Without this, the deal will certainly crumble when a road block approaches. Each VR business intermediary facilitates the transaction between the buyer and seller, ensuring that the concerns and conditions of both sides are heard; and an understanding and set of terms can be reached in a successful business sale.
Inability by Buyer to Raise Necessary Capital
Unfortunately, this can occur quite often where the buyer has been trying to secure the loans to purchase the business. They end up being turned down for some or that entire number he had submitted for approval to the bank, resulting in the deal falling through. We strongly recommend that seller financing is utilized to avoid these kinds of mishaps. In many cases, the seller can have a better interest rate, while the buyer doesn’t have to waste time going through the usual paperwork and applications that can take place with a traditional lender.
The Seller Backs Out
A seller starts thinking about everything that they have worked for in the business, and decides that they cannot go forth with the sale. VR takes steps with the seller from the time they come in for their first consultation, whether they are ready and prepared to sell.
To learn more about avoiding these and other types of deal breakers, contact your local VR business intermediary today.


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