Even though signing the letter of intent (LOI) is an important step in the sale process, more than half of deals still fall through after getting to this point. Here, we look at the three biggest factors responsible for transactions falling through at the last minute.
Poorly Constructed LOI
The LOI is the cornerstone upon which the closing process is constructed. There is a real risk that conflicts will lead to the transaction falling through if the terms of the sale are not spelled out in explicit detail. While it may be tempting to withhold some information in order to advance the negotiation process, it is almost always preferable to work out these specifics up front in order to ascertain whether a crucial concern is a deal-breaker.
When a sale is being made, communication is crucial. All sides are concerned about what could go wrong since the stakes are so high. It will promote goodwill and offer the other party to the transaction the assurance that they are dealing with someone they can trust if you are open to communication and attentive to demands.
Declining Business Performance
The buyer is keeping a close eye on everything during this time and searching for any opportunity to negotiate a lower purchase price. Since the sales process takes time, management may become distracted and overlook the day-to-day tasks of running the company. Any temporary deterioration in business during the closing process will probably require the buyer to prolong their due diligence to make sure that this is just a one-off anomaly and not the start of a trend that will persist after the deal closes.
For most business owners, selling their company is a once-in-a-lifetime experience with a considerable financial investment. Sweat the small stuff and pay attention to the details to greatly boost your chances of closing the deal.
Alvarez & Diaz-Silveira LLP is a corporate law firm in Miami, focusing on international and domestic M&A, finance, real estate and corporate immigration. If you or your business needs legal advice, contact an M&A Attorney in Miami for help.