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How To Tell If Your Online Business Sale Deal Is Dying
By Quiet Light
There are many different paths a seller can take to sell their website. However, most high-value website acquisitions include a period where the seller locks in exclusively with a single buyer based on an offer made by that buyer.
At Quiet Light Brokerage, we refer to this step generically as the “due diligence” step, although it may be more accurate to refer to this more specifically as verification due-diligence. While selling a valuable website is difficult, there is no step that is more difficult than this final verification due diligence phase.
As Joe Valley (one of QLB’s advisors who started as a client) recounts, when he sold his online business he often felt as if he worked harder selling the business than he did building it up.
This final due diligence phase is difficult primarily because it is so important: for the buyer, these final checks, inspections, and verifications are the only thing that stands between them and a major investment.
For you, the seller, this phase is important because there is only one buyer at this point. While you can go back to the marketplace with your business, it’s better to get the sale done on the first try. Buyers can be somewhat skeptical of a website that failed another buyer’s due diligence.
So it is important to pay attention to the cues that may indicate your deal is in trouble. For the advisors at Quiet Light Brokerage, we often pay attention to these cues instinctively. But for someone who isn’t working with buyers on a daily basis, knowing what to look out for could save your deal.
Four Verbal & Non-Verbal Cues That Your Deal Is In Trouble
Keeping your deal alive requires that you listen to more than what your buyer is saying: pay attention to what they are not saying. Also, pay attention to what could be behind their actions and requests.
Here are four things to look for from your buyer that demand your immediate attention.
Cue 1: Silence
Once a buyer has submitted an official Letter of Intent to buy your website, communication should be free flowing and frequent. Since this final due diligence phase is the last step before that buyer invests heavily in your business, you should expect that they want to gather as much information as possible.
That is why silence is a trouble indicator. Silence is often a sign that your buyer is working through a problem. Some information doesn’t make sense or match up with their expectations. Unless they can resolve that issue, there is no reason for further communication.
Of course, silence is not all bad. There are natural points during the due diligence process where you should expect a buyer to dig into the information and materials you provide.
For example, most due diligence phases require that you provide proof of your financial statements through bank statements, merchant accounts, and tax returns. A buyer will often use these statements to recreate the financials you showed earlier in the sales process. You can be sure that this isn’t an activity that takes a few hours. It takes days, and while a buyer is recreating your financials, there won’t be a lot of communication.
Outside of these expected periods of silence, however, you should pay close attention to a buyer who seems to disappear.
How To Address a Silent Buyer
If your buyer grows silent, you need to take action quickly. As I wrote above, buyers often grow silent when they see information that doesn’t match their expectations. It is up to you to help explain any discrepancies or surprises they may encounter.
If your buyer is silent, address their silence by being proactive. Reach out and request a check-in call. Work methodically through the due diligence checklist and ask direct, yet polite questions:
- Have you been able to verify the financials?
- Are the statements I provided to you sufficient to support the financials I showed earlier?
- Is there any information that has surprised you?
Work directly off your buyer’s due diligence requests. If they asked for copies of vendor contracts, ask them if they’ve reviewed the contracts and if there were any issues.
If you find a problem area, invite the buyer to demonstrate their problems and perceived discrepancies to you.
By being pro-active, you prevent having a potential discrepancy ruminate in your buyer’s mind, and you provide your buyer with more information, better information, about your business.
Cue 2: Hyperfocus
On the opposite end of the spectrum from a silent buyer is a buyer who seems to become hyper-focused on a single issue.
For example, buyers will always want to verify your financial history. If your buyer, however, begins to add significant due diligence requests for any particularity, this can be a tell-tale sign that they are having difficulty matching what you initially showed them. For example:
- A buyer requests a detailed history for just one vendor
- A buyer requests information for a specific period of your business
- A buyer requests specific information about a particular revenue stream
How To Address Hyper-Focus
If a buyer becomes hyper-focused, be thankful for having such an obvious sign of possible trouble. Just like you would do with a silent buyer, be proactive to help your buyer recreate their area of focus.
For example, if your buyer is hyper-focused on the satisfaction levels of your customers, be proactive to provide your buyer with customer feedback. Many sellers agree to let a buyer contact random clients under the guise of a consultant or customer service check-in.
If you have a hyper-focused buyer, avoid the ‘void’. Give your buyer information to fill the void and satisfy their concerns.
Cue 3: Moving Goalposts
When you enter into the final due diligence phase of your deal, you and your buyer will likely put a timeline on that phase (at least you should do this). But just because there is a deadline doesn’t mean that you will meet that deadline. It is common for a buyer to request an extension to do more research.
While you shouldn’t be surprised by a request for an extension, you should check the reasons for an extension against the progress of the deal. Some buyers, especially first-time buyers, often work overcome cold feet, and delays are a part of that work.
The danger to avoid with moving goalposts is the attempt of a buyer to get everything perfectly aligned before closing. While you have a vested interest in ensuring your buyer is well prepared to take over your business, some items, such as training, should occur after the business changes hands.
How to Address Moving Goalposts
Before you take action against moving goalposts, you first need to verify that the buyer is suffering from cold feet. To do this, check their extension request against your due diligence checklist. Are they revisiting old and previously cleared due diligence items? Or, are there outstanding due diligence items that you haven’t yet covered? It could also be possible that information delivered during due diligence spurred a new request.
If your buyer is revisiting old and previously cleared items, or if they are trying to force training before closing the deal, you should take action. Inform your buyer that while you understand their request for more time may be needed, you are not interested in a due diligence process that doesn’t have an end.
Ask the buyer to work with you to update the due diligence checklist to get the final required items on paper. You should agree to extend your due diligence period to hand over these items. But, if they have further requests, politely inform your buyer that you will begin exploring relationships with new buyers.
Be careful not to burn the bridge with your existing buyer, and leave that door wide open. Finding another buyer should not be your first choice, but it is a choice that gives you leverage.
Finally, if your buyer is using outside funding such as SBA, understand that the delays may not be their responsibility.
Cue 4: Line in the Sand
When a buyer makes an offer on your business, there will likely be plenty of euphoria for both you and the buyer. A Letter of Intent comes with heaps of optimism.
But that optimism has a tendency to fade once final due diligence begins and final negotiations commence. In fact, even if your negotiations for an initial offer were difficult, they won’t compare to final due diligence negotiations.
Because final due diligence and negotiations can become quite tense, it is tempting for both a buyer and a seller to draw a metaphorical line in the sand. While early negotiations may have been easy to reach accommodations, final negotiations contain more non-negotiable items.
Drawing hard lines rarely succeed. As I often tell my advisors, lines beget more lines. If your buyer draws a hard line, the temptation may be to play hard in return. But this approach leads to broken deals, not completed deals.
Rather than respond in kind, analyze your buyer’s request. Often a non-negotiable request focuses on a process to achieve an end rather than the end itself.
For example, a buyer may want to verify that your vendors will work with them under their new company. To achieve this end, your buyer may require that you setup conversations before a purchase agreement is signed to verify that the vendors will work with the buyer’s new company. Your buyer may go as far as to tell you that without those conversations, they can’t complete the deal. However, you may not be keen on the idea of letting your buyer talk to your vendors and disclose the sale before you have a signed purchase agreement.
In this example, what is the buyer asking? Do they want the conversation with vendors? Or do they want assurance that they’ll have the same vendors you use?
Once you find your buyer’s true objective, you can begin to work on a solution that meets their objective. In the example above, buyers and sellers often sign a conditional purchase agreement that satisfies both requirements.
There are a lot of subtle signals that indicate the health of your deal. Learning what you should pay attention to often requires experience and exposure to multiple deals. But there are also some more obvious signs that anyone can identify.
To save any deal, always remember that politeness beats hard-line approaches. Remaining objective in your analysis is always better than reacting to how you feel. Keep track of your progress, check in frequently, and work collaboratively with your buyer to help them get comfortable with your business.