Why Deals Fail When Buying & Selling Businesses: Unrealistic High Asking Prices Are Usually The Culprit

Why Deals Fail: Unrealistic High Asking Prices Are Usually The Culprit

High Purchase Prices Tank Deals

The unfortunate truth is that approximately 50 percent of all small to mid-sized business for sale transactions fall through. Failed transactions can happen for a variety of reasons, i.e. the owner/seller has poor record keeping abilities, the business location has an unattractive lease, and even a lack of motivation for the owner to get a deal done, etc. While many of those reasons have led to failed deals, the most common reason that deals fall through is because the seller has listed their initial asking price much too high or the deal terms just don't pencil out.

When a business owner lists their small business for a price that seems otherwise unreasonable to potential buyers, it ultimately scares off the majority of those buyers who were genuinely interested in buying the business. Business owners who have invested a lot of time and money into their company want to get top dollar for their hard work, even if it means valuing their business where they believe future profits would have taken them, or in the ballpark of what their business was worth before recessions or downturns in the economy.

If a business owner has their business priced too high and begins negotiations with a potential buyer who is willing to buy the company for much less than the listed price, it is important to keep an open mind and work toward understanding why people aren't willing to pay the full asking price for their business.

As a seller, you may have come to your asking price without having your business properly valued/appraised (such as utilizing a business valuation professional and/or the BizBen.com database of pre and post sale comps), and may need to reevaluate your stance on your asking price (and deal structure) and seek professional assistance. This is critical since the first thirty to forty five days of a business being on the market to sell is the most important time period to get things (valuations) right!

As a potential business buyer, it is critical to be able to support your value of the business you are interested in purchasing with hard facts. Analyzing a profit and loss income statements and business tax returns from the previous 3 years is an excellent place to start and is among the numerous things that will play into the process of valuing the business - but there are other documents and information that you'll need to really determine what the small business is truly "worth".

After an offer is made, both parties must work together to understand where the other side is coming from and that everything is negotiable. If you aren't willing to budge or negotiate, you'll never get a deal done. Both parties (sellers and buyers) should develop a rapport with one another to show good faith and support their reasoning for prices in a way that doesn't scare the other party out of a deal. Neither party should become excitable or get offended by the other person's offer/LOI/purchase agreement, but rather strive to make a deal that benefits both sides based on supporting documents and information.

About the Author: Peter Siegel, MBA is the Founder & Lead Advisor at BizBen.com (established over 25 years - with thousands of small businesses for sale & wanted to buy postings - over 500 new & refreshed posts & postings daily). BizBen.com offers business buyers, owner sellers, business brokers and advisors free access to online postings, articles, blog posts, discussions, podcast, resource and broker directories, etc. Peter heads up the BizBen.com ProBuy, ProSell, & ProIntermediary Programs. Peter Siegel, MBA can be reached direct at 925-785-3118.

Categories: BizBen Blog Contributor, Business Valuation Issues, Deal And Escrow Issues, Due Diligence Issues, How To Buy A Business, How To Sell A Business, Selling A Business

Contributor:

Peter Siegel MBA, BizBen Founder, ProBuy, ProSell, ProIntermediary Programs

Areas Served: All Of California

Phone: 925-785-3118 Cell, 925-785-3118 Text

Peter Siegel, MBA - Founder Of BizBen.com (since 1994), I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I advise/coach buyers, sellers, and brokers daily about buying & selling small to mid-sized businesses throughout the Nation. I can be reached direct at 925-785-3118.

Save This Contact • My Notes About This Contact • Email This Contact •

Comments Regarding This Blog Post

Contributor: Timothy Cunha JD, Business Broker: San Francisco Bay Area

A realistic initial valuation of a business and a SWOT analysis of its "strengths, weaknesses, opportunities, and threats" is essential to a successful business sale. Not only can sellers determine the realistic market price for the business as it now stands, but they can also learn specific practical steps to make their particular business more valuable and command a higher price. We provide a free no-obligation value analysis for any business owner who anticipates possibly selling the business sometime in the future. It's accessible on line, takes about 15 minutes to fill out, and results in a 25-26 page report. Just contact me.

Contributor: Joe Ranieri, Business Broker: LA, Orange Counties

Although sometimes even the best business brokers can not hold a deal together, there are somethings that we can do to improve our chances. Since the buyer may not be approved by the landlord before opening escrow, it's possible to at least inform the landlord and get a rough idea if the buyers are going to have problems by showing the landlord their credit score, asset/liabilities, and perhaps a business plan the buyer may have for the business. Most landlords will make it clear if they will write a new lease or give the new buyer an option on the existing lease, if there is no option at the time. Landlords many times have been the culprit of deals going sideways, and often times the higher the rent the current occupant is paying, the more critical they are, because suprise suprise, landlords are manly concerned with just getting their money.

Helpful Resources To Assist In Selling And Buying California Businesses

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services In California

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

Helen Yoo at New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

Should I Buy A Business That is Losing Money? Feedback From Top Advisors

Are businesses worth taking a look at when they are losing money? Multiple Advisors & Business Brokers weigh in on this topic and say yes! (but be careful) on a BizBen Discussion. Some great feedback on this topic will make potential business buyers (and money losing sellers) want to read this info!

How Do I Navigate Through The Negotiation Process When Buying A Business?

Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.

Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Business?

Buyers search for an absentee business, wanting to collect profits generated by a successful enterprise without having to stand at the sales counter or cash register, without having to cook, operate equipment or talk to customers. Peter Siegel, MBA offers his intake on absentee run businesses.

Need Financing To Buy A Small Business? Business Purchase Financing Details

What are actual adjusted net earnings (cash flow) of a small business being purchased with business acquisition financing? That's an important amount that lenders need to know. Peter Siegel, MBA (BizBen.com's Lead Advisor - ProBuy/ProSell Programs) reviews this concept with BizBen Blog readers.

Selling California Small Businesses: 13 Crucial Items To Selling A Business

Only 30% of all CA small businesses for sale that are put on the market overall are sold! A surprising statistic to most business owners, agents, and brokers trying to sell a California business! If however you follow the strategies (BizBen Protocol Method) in this blog post you should see success!

Find Out Why 80% Of California Business Buyers Never Find And Buy A Business

First the dreaded statistic: 80% of all CA business buyers looking to buy a business in California never end up doing so! Peter Siegel, MBA BizBen.com Founder & ProBuy Director) covers successful tactics & strategies all business buyers of California small to mid-sized businesses should utilize now.

How Many Listings Is Too Many For One Broker To Handle? Is It 5? 10? 20?

Peter Siegel, MBA in this Vlog/Podcast discusses how many listings is too many for one business broker to handle at one time. Is it 5 is it 20? I recently had a coaching call with one of my BizBen broker clients who asked that question this week. There are many factors that go into the answer.

Key Tax Considerations In A Deal: Deciding Between An Asset vs A Stock Sale

There are a number of the critical tax-related factors which should be reviewed by a party with their legal and tax advisers in determining the best structure for a sale transaction, i.e., whether it should be an Asset Sale or a Stock Sale. Attorney William Ziprick, Esq covers this topic.

Escrow Services Diane Boudreau-Tschetter

Escrow Services From Helen Yoo New Century Escrow

Veld Group Business Brokerage Los Angeles County

California Educational Events Buying And Selling Businesses