"Fell out of escrow." This is a phrase that any Business Broker simply hates to hear. But unfortunately, as most Escrow Companies report, the percentage of escrow's successfully closing to escrow's being opened is very low. Why is that? Doesn't it seem that if one is to open an escrow you expect it to close?
There are multiple reasons why an escrow may not close but here are some of the top 5 reasons in my opinion;
1. Poor communication Being able to communicate with all givens parties is imperative in the sale of a business. For example, If a Landlord chooses to not answer their phone or emails in a timely fashion, do you think this could generate doubt and frustration with the new potential Owner of the business.
2.Failure of the buyer or business to qualify for financing. Prior to opening escrow make sure your Lender or the financing is 100% in place. Allow your lender to review the business's book and records, tax returns and financials along with the Buyer's financials.
3. Failures of the business or property. Have all the "challenges" or "unique attributes" of the business been disclosed prior to escrow being opened?
4. Bulk Escrow UCC search finds undisclosed or forgotten liens, EDD issues, tax franchise accounts, ...
5. Unrealistic expectations. This is probably one of the biggest reasons an escrow falls apart. How many times have we seen a Buyer simply back out of an escrow after the excitement of buying a business goes away or the realities of what it takes to succeed in a business finally hits them?
When considering a business to purchase give yourself permission to ask all the hard questions. Find out first if the business you are considering is really right for you and if all of your concerns are being addressed. Get all of your financing in order, understand the industry you are interested in. It is a lot easier to say no thank you to the purchase of a business before escrow is opened rather than later.