WHY WE WALKED AWAY AFTER EXCHANGING CONTRACTS

One of the advantages of advising on business transactions is that, every now and then, we come across opportunities we'd be happy to own ourselves.

Recently, we did exactly that.

The business ticked many of the boxes we look for. It had generated almost $1 million in revenue in its first year, operated with a relatively lean team, and the owners had already proven there was genuine demand for the service. We believed there was significant upside if the right systems, reporting and management disciplines were introduced.

We made an offer.

Contracts were exchanged.

Due diligence commenced.

From the outside, it looked like the acquisition was simply a matter of completing the final steps before settlement.

Instead, we walked away.

The reason wasn't because we uncovered fraud or anything deliberately misleading.

Quite the opposite. The owners were genuine people who had built an exciting business.

The problem was that, as we worked through due diligence, the story gradually became less convincing.

The financial reporting wasn't giving us a reliable picture of the business's true profitability. Conversations with key staff painted a different picture of operational capacity than the one we had been presented. Assumptions we'd relied on when valuing the business became increasingly difficult to validate.

None of those issues, individually, would necessarily have killed the transaction.

Collectively, they changed our confidence.

That's an important distinction.

Buyers don't expect perfection. Every business has weaknesses. What buyers are looking for is consistency. They want the business they discover during due diligence to look like the business they were introduced to at the beginning of the process.

When the opposite happens, when each new conversation creates more questions than answers then confidence begins to disappear. Once confidence is lost, even a good business can become difficult to buy.

We often encourage sellers to think carefully about the journey they're taking buyers on.

It's tempting to lead with the highlights and hope the difficult conversations can wait until later. In reality, the opposite approach is usually far more effective.

Be transparent early.

Allow buyers to understand the challenges.

Then let every subsequent interaction reinforce why the business is still a compelling opportunity.

The strongest transactions aren't built on perfect businesses.

They're built on believable stories.

Watch full discussion.

One of the advantages of advising on business transactions is that, every now and then, we come across opportunities we'd be happy to own ourselves. Recently, we did exactly that. The business ticked many of the boxes we look for. It had generated almost $1 million in revenue in its first year, operated with a relatively lean team, and the owners had already proven there was genuine demand for the service. We believed there was significant upside if the right systems, reporting and management disciplines were introduced. We made an offer. Contracts were exchanged. Due diligence commenced. From the outside, it looked like the acquisition was simply a matter of completing the final steps before settlement. Instead, we walked away. The reason wasn't because we uncovered fraud or anything deliberately misleading. Quite the opposite. The owners were genuine people who had built an exciting business. The problem was that, as we worked through due diligence, the story gradually became less convincing. The financial reporting wasn't giving us a reliable picture of the business's true profitability. Conversations with key staff painted a different picture of operational capacity than the one we had been presented. Assumptions we'd relied on when valuing the business became increasingly difficult to validate. None of those issues, individually, would necessarily have killed the transaction. Collectively, they changed our confidence. That's an important distinction. Buyers don't expect perfection. Every business has weaknesses. What buyers are looking for is consistency. They want the business they discover during due diligence to look like the business they were introduced to at the beginning of the process. When the opposite happens, when each new conversation creates more questions than answers then confidence begins to disappear. Once confidence is lost, even a good business can become difficult to buy. We often encourage sellers to think carefully about the journey they're taking buyers on. It's tempting to lead with the highlights and hope the difficult conversations can wait until later. In reality, the opposite approach is usually far more effective. Be transparent early. Allow buyers to understand the challenges. Then let every subsequent interaction reinforce why the business is still a compelling opportunity. The strongest transactions aren't built on perfect businesses. They're built on believable stories. Watch full discussion: https://www.youtube.com/watch?v=Lx4cE_3hF_Q