7 Things That Can Squash a Sale

Selling a company is a complicated process with many pitfalls. Here are the common ones and how to avoid them.

Selling a company is exciting, but it's certainly not easy. As a strategic business coach, I've worked with several companies that have gone through the sale process or have acquired companies to fuel growth. I've also been a founder myself and exited my business successfully. It's quite a ride--and often one that feels more like a rollercoaster than a lazy river.

Many deals fall apart, and for every successful sale you read about, there were likely a half dozen failed attempts before that. Here are some key reasons business transactions don't work out and what you can do to avoid them.

1. Not having your ducks in a row

Before you begin the sales process, you need to have everything in order and ready for buyers to review. This includes updated and accurate financials, client lists, customer contracts, employee agreements, records and policies, and anything else a potential buyer may want to review before making any offer. This will speed up the sale process, but more importantly, it will instill confidence in the buyer that you have your 'stuff' together and they can trust what you're telling them.

2. Mismatched expectations

Too often, I've seen buyers and sellers have fundamentally different visions about the future value of the company. If a seller hopes to sell the company and head off to the beach to retire, and the private equity firm expects them to stay and grow the business for another five years, things won't work out well. Conversely, if a strategic buyer goes to strip the company of its assets and lays off all the people, and the seller is attached to their people and culture, then there will be conflict. Figure out what you want so you can check buyer fit early in the process.

3. Unpredictable performance

Nothing unnerves a buyer more than erratic and volatile business performance. Yeah, you might have had a few record years with amazing profits, but if, between them, you have unexpected losses and rebuilds, they will think twice about buying and certainly won't pay top dollar. Make sure you have a clear and effective business planning process and a systematic way of generating results on a consistent and predictable basis.

4. Unmitigated risks

Every business has risks. The trick is to assess them quickly and develop effective mitigation strategies to reduce their impact or avoid them altogether. A seller with a good system and track record of good risk management will inspire confidence in the buyer. If a buyer can uncover multiple risks that the current team doesn't have a clear strategy for addressing, their offer will certainly reflect that.

5. Unprepared sellers

Sometimes the business is in good shape and ready to sell, but the owners are not. I've been involved in more than one deal that was made more complicated or even sabotaged because the sellers hadn't really figured out their personal plan post-sale. If you're a founder, your ego and overall life purpose can be tied up in the company. Without a clear plan and a new vision, selling your company can feel like cutting off a limb. Make sure you've done the work and are really ready to handle the transition.

6. Skeletons in the closet

Once we decide to start working towards a sale, one of the first conversations I have with the founder is to show me all the skeletons in all the closets. I want to get them out now so we can deal with them, not in the eleventh hour when we're at the table trying to close the deal. Disgruntled ex-employees, unhappy clients, creative accounting, and unlicensed software, all need to get on the table upfront if we're going to have a shot at avoiding deal killers.

7. Flagging performance

The process of preparing and selling a company can be all-consuming and very distracting for leadership. Keep your eye on the ball and maintain your company's growth and performance, even when pitching the business. It's not uncommon for leadership to get caught up in the deal and end up with a down month or two of business results. This can often kill a deal and will certainly affect the price. Manage your time and resources appropriately to keep your team on point.

While every deal will have twists and turns, and you'll have to compromise on the numbers and terms, avoiding these key issues will minimize the drama and the pain and increase your likelihood of a successful and substantial exit.