Understanding Why Business Transfers Fail and Strategies to Ensure Success

Business deals — whether mergers, acquisitions, or partnerships - are complicated. Even when both sides are interested, deals sometimes fall through, even at the last minute! There are a few common reasons why this happens and understanding them can help you avoid such a disaster befalling your own business transfer.

Financial Concerns

Clean, accurate financial records are critical. If the business’s financials are unclear, incomplete, or overstated, buyers will be put off. Buyers will forensically comb through your records and any hidden liabilities (pensions, for example) are likely to be discovered. Before you start the process, make sure your accounts are up to date, match your bank statements and reflect the real value of the assets in the business.

Drop in Sales & Losing Customers

Unless you are involved in a “distressed” sale where the business is in trouble, with the buyer already aware, most acquirers will want to see that the business is growing and has more opportunities to increase its profit. Unfortunately, sometimes businesses do lose valuable contracts during the negotiation process meaning that the sale price is no longer realistic. It can be very hard for entrepreneurs to take a hit on the valuation but if this happens, unless you have new deals lined up to compensate, you are going to have to accept a lower offer, or the buyer will almost certainly walk away.

Stock and Inventory Problems

If a company has a lot of unsold stock or a high rate of product returns, that will be seen as a major red flag for buyers. Excess inventory ties up cash and can indicate problems with demand or product quality. Buyers obviously don’t want to pay for worthless assets – even if you paid a lot for them. To prevent this issue, sell unpopular products at a discount to get them off the balance sheet and only restock items with low return rates.

Supply Chain Disruptions

Supply chains are often fragile. If a key supplier is unreliable or there’s too much dependence on one source, it can cause delays which increases the risk of the business faltering. Recent global events have shown how easily supply lines can be disrupted. Make sure you have enough stock for the business to keep going for a decent period post-sale, and that you have contingency plans for all key products you need to run your business. If the buyer decides the supply chain is too risky, the deal will likely fall through.

Cultural and Integration Challenges

Sometimes the problem isn’t just numbers or contracts—it’s people. Differences in corporate culture or management styles can make integration difficult after the deal closes. Buyers often consider this during due diligence, and concerns here can cause deals to fall apart. Before getting too far into the process with a buyer, make sure that your vision is aligned, if relevant, post-acquisition.

Legal Issues

Legal problems are a major reason deals stall or fail. This could be anything from contract disputes, unclear ownership of intellectual property, to unresolved employee obligations like pensions.

Sometimes, pending lawsuits or regulatory issues come to light during due diligence and cause buyers to reconsider. The best way to avoid this is to have your legal affairs in order before you start negotiations. Get legal advice if necessary, and try to settle any disputes before you market your business.

 

Make sure Shareholders & Employees are on board

While it can sometimes be possible to sell a company without minority shareholders agreeing, most buyers will want to see that all of the shareholders support the sale – they will not want to take on the risk of unhappy shareholders starting costly litigation against the Company after they’ve bought it. Shareholder disputes will cause most deals to fall through as they suggest the Company is at risk both in terms of morale and legal action, so make sure you are all on the same page before you begin the business sales process. Similarly, it's important to incentivise key members of the team to stay or the buyer will get cold feet.

Business sales can fall through for many reasons, but most do because of issues that could have been identified and managed earlier. With careful preparation and clear communication, you greatly reduce the chances of a buyer leaving the table. Getting professional help should ensure that most of these risks are mitigated against. At KBS, we give all of our clients a detailed list of requirements for them to prepare for a business sale properly, which greatly reduces the risk of a sale falling apart.

Ultimately, it’s so important to be honest – a few mistakes can be forgiven, but broken trust is very hard to repair. The due diligence process will usually involve the buyer carefully checking every contract and bank transaction – don’t think you can hide any big issues. And if you do withhold important information and the sale still goes through, the buyer could start legal action against you afterwards anyway – it just isn’t worth it!

Get in touch today for a free business valuation, and to find out how we can help you make your business sale a success.