You are using an outdated browser. Please upgrade your browser to improve your experience and security.

WES S01E06: Top 7 Last Minute Deal Killers

Justin Cooke August 18, 2015

Subscribe to our VIP LISTLosing a deal can be a gut-wrenching experience you’ll want to avoid at all costs.

Getting deep in the process only to have the deal fall through last minute is a huge waste of time, effort, and energy. The emotional swings can make it tough to get back on the horse.

In this episode, Ace and I want to give you a run through of the top 7 deal killers we’ve run across and share some of our personal experiences in losing deals on both the buy and sell side. We’ll look at some of the personality conflicts we’ve run up against, what happens when a change in earnings/traffic happens mid-closing, and some of the signs you might not be working with the best buyer/seller.

We’re hoping that sharing our experiences here will help you avoid losing your own deals at the last minute.

If you’ve been digging our show so far, make sure to give us a review on iTunes, Stitcher, or leave us a voicemail by clicking on the right hand side of your screen.

Listen To The Full Interview:

What You’ll Learn From This Episode:

  • Too many unnecessary employees and loose relationships with contractors
  • Personality conflicts
  • Vendor or wholesaler requirements are too stringent
  • A last minute decline in revenue or traffic
  • Pending Legislation (or Litigation)
  • Seller is CRITICAL to the business
  • Seller had a litigious past

Looking to Buy? Click to View the Marketplace


 Featured On The Show:

 

Ace Chapman:
You’ve got to remember, as a seller, you want things as simple as possible. The more complicated a deal gets, the more likely it is to overwhelm the buyer and kill the deal.

Speaker 2:
Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show where thousands of successful entrepreneurs go to learn about buying, growing, and selling online businesses. Your hosts, Justin Cook and Ace Chapman, share their real life advice, examples, and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.

Justin Cooke:
Welcome to the episode six of the Web Equity Show. I’m your host, Justin Cook, and I’m also here with Ace Chapman my co-host. What’s going on, brother?

Ace Chapman:
What’s going on, Justin? I’m excited to jump into some calls and all kinds of neat stuff we’re going to be chatting about today.

Justin Cooke:
Yeah man, I had a really good week. A bunch of responses on Twitter, on iTunes, all kinds of stuff. We’re gonna get into that. We’ve also got a great episode lined up. We’re talking about the top seven deal killers or death on the vine. We’re gonna talk about some deals that went bad from both the buyer and the seller side. And I hate to admit it, man. I hate to get into it, but yeah, yeah, we’ve had a couple of deals go bad. You know, it could have been through in the negotiation, it could have been through broker inadequacy. I don’t know, man. I don’t know. But we’ve had some deals go bad. We’re going to talk about it. And some of the reasons for that as well.

Ace Chapman:
Yeah. And it’s funny. Even for me, I was just talking to a guy yesterday and we have a lot of strict rules that we try to make our clients follow as we’re doing deals. But at the end of the day, people are excited to get deals done and they get anxious and it’s like, “Okay, I don’t wanna wait to find that perfect deal. I’m okay with doing this.” And just yesterday I was talking to a guy, he’s like, “You told me not to close on that deal. I did it anyway and sure enough, it went bad.” And I never want… even if I recommended a guy doesn’t do a deal, I always want them to be successful. But yeah, sometimes he’s jumping in and you do things, but we’re going to talk, tell folks how to avoid being in that situation.

Justin Cooke:
Yeah, and I think this is actually born out of experience because these are deals that we’ve gone through or survived and some of our clients have survived, and we’re going to share our bad experiences with you. So hopefully you can avoid some of those same mistakes. And we have seven main points we want to cover.

Before we do that though, we’ve got some listener love, we’ve got a bunch of new iTunes, seven new iTunes reviews, all of them five stars, first off I’ll say.

We’ve got in the US, we’ve got Sam Leslie. Says: “Buying and selling simplified. So I know these guys have done business with both of them. Ace is one of my partners, and I’m a partner in another deal that we bought from Empire Flippers. First few episodes of her field, much of the inside of the business of buying and selling websites and web properties. I can attest the potential of investing in weapons is yes, the cash comes rolling in immediately.” Thanks, Sam. Appreciate it.

Ace Chapman:
Yeah, love Sam. We’ve done some deals together like he said, and he’s a hustler. He’s, he’s done two deals. He’s already moving on to the next one and I’m excited. In a future episode, we’re gonna talk about how to do that, about hiring and building a team and that kind of thing. If you really have a vision for doing multiple deals. So Sam is taking those concepts and putting them into action.

Justin Cooke:
Yeah. And then we’ve got another one from Test Dummy Income: five stars. “I found another great podcast. I’ve always been a fan of Justin from Empire Flippers podcast and Ace is always one of my favorite guests. Combine the two, and you have a unique show.”

We’ve got MDM, said: “Absolutely great show. Absolutely a must-listen. Ace, one of the hosts often says, “Absolutely”.

Ace Chapman:
Absolutely.

Justin Cooke:
You’re saying “absolutely” a little too much. That’s one of the things about a podcast, right? And you start to realize your verbal tics and those things you say over and over again and yeah, it gets a little… You’re like, Oh God, I got to stop that.

We’ve got The Dude Is Broke, said: “Good stuff, entertaining and insightful.”

We’ve got Edgar, said: “Nice extension.” He’s in Canada. “Suggestion: Ace, nice extension to the work from Empire Flippers.” We had a Ross in Canada, said “Great show, valuable info from two trustworthy guys who clearly know what they’re talking about after years of experience.”

We even got a UK review, buddy. Five stars from Carlos, said “A must for anyone in online business as a regular listener of the Empire Flippers podcast I was pretty sure this one was gonna be great too and it is. I’m two episodes in, and I’m hooked.”

So thanks guys for your iTunes reviews. If you are digging the show, and you want to give us one, we’d really appreciate it. We’ll give you a shout on the show. Just give us an iTunes review. We’ll check it out and put you on.

Ace Chapman:
Yeah, we’re international. I love it.

Justin Cooke:
Yeah, buddy. We’re working our way up. So next up, buddy, we’ve got some listener questions. We’ve got three of them, and I’m going to go ahead and cover those now. First one is from Tony. He had a question about selling Amazon sites.

Tony:
Hey Justin and Ace, this is Tony from testdummyincome.com, and I have a question for you on selling an Amazon associates niche site. I currently build these sites using Thrive Themes’ content builder, which is basically a drag and drop editor. Will this hurt my resale value since the buyer was going to be required to have a license for this plugin? And also they would have to know how to use it. Thanks. Love the show and looking forward to hearing your answer.

Justin Cooke:
So he’s basically wondering if it’ll hurt the sales value selling sites on the Thrive Themes platform or engine. Now Thrive Themes is based on WordPress, so that’s great. I mean it’s still WordPress focused, and a heck of a lot of people know how to use WordPress.

If you’re using some other platform that’s other than WordPress that requires a whole bunch of, you know, a big learning curve that’s going to be, I think, much worse and that will definitely hurt you. I’m not familiar with Thrive Themes, so I don’t know exactly how different it is and the back end, but if it’s relatively some of the WordPress, which it must be, I don’t think it’s going to be that big of a deal. It’s really going to depend on the complexity on the back end and how well someone can jump in and learn it. You might have some buyers turned away if they think that it’s too difficult, but you know in looking it up briefly, I don’t think it seems like it’s going to be much of an issue. What do you think guys?

Ace Chapman:
Yeah, we’ve done some drafting deals, and it’s WordPress based and so that alone at least gets people comfortable with it. And most of the time, the thing you want to be sure when you’re building a site is that it just is something that has two things. One: Outsourcers that are willing to work on it because a lot of people don’t even want to do any technical work themselves anyway. And that becomes, even if it is easy, even if you’re able to go to that seller and say, “Hey, this is easy, you can figure it out.” And they’re like, “Well no, I don’t really want to, I want to outsource it.” Or the platform is recognized among outsources and that kind of thing, the easier it’s going to be for them to find somebody that’s going to run it. The other part of it is that it is something that is recognizable. So there are these other builders that just nobody has heard of.

And so the question is really legitimate from that standpoint because if you get into those, that can be an issue. But this one in particular, I would really let people know that it’s basically built on top of WordPress, and most people are familiar with that and know how to get in there and at least play around and figure things out.

Justin Cooke:
All right. Let’s hear the next shout.

Ryan Sorenson:
What’s up guys? This is Ryan Sorenson with Acquisition Station, and I’ve definitely worked with Ace in the past. Me and him are considered bros and Justin, me and you have been in contact before as well. Congratulations on this show. This actually looks really cool. Looking forward to listening to some of the podcasts and, all right, looking forward to it. Thanks guys.

Justin Cooke:
Thanks for the support Ryan. Thanks for listening to show. Appreciate it. I don’t know what’s going on with you calling Ace a bro, man. [crosstalk 00:07:36] I’m your podcast co-host man. What’s going on?

Ace Chapman:
Yeah, Yeah. I got bros all over the place, man. [inaudible 00:07:44] when I was doing some work with the orange [inaudible 00:07:51] and so yeah, man, I love that Ryan’s doing his thing and getting some deals done. We’ve done some deals together, so thanks for calling me in, bro.

Justin Cooke:
Yeah, you got bros all over the world. All right, Ryan, appreciate the call-in[crosstalk 00:08:04] and you’re listening to the show anyone wants to check him out, he’s over at acquisitionstation.com. I’ve actually looked at a couple of his deals in the last few months that I was kind of interested in. I think they weren’t available or one of them was under offer or something and but yeah, he’s got some good deals coming out of there. So yeah, we’re happy to get you involved or helping answer questions in the comments. If you find anything that is appropriate that you think you could answer.

Here’s our last clip, Ace. Let me go ahead and play this for you.

Ujwal:
Hi, my name is [inaudible 00:08:30] from Detroit, Michigan, and I had a question in regards to the outlook of the industry in general with the development of all these mobile applications. Do you see any threat to websites and do you think it’s something where, if it’s financially responsible to do so, we would have to develop an application for mobile apps? Or is it something that there’s a long future ahead and that’s not anytime soon where the internet or her websites will be losing their value essentially.

Justin Cooke:
All right man, he’s getting serious. He wants to know about the industry. Where’s the industry going? Are we tanking or is it being taken over by mobile apps? It’s interesting. It’s a really interesting question, actually. So you know, are mobile apps going to take over? Are they gonna take over for websites overall? Are we going to see a decline in websites? I don’t think so, but I think there is a trend toward mobile and I think that being able to use something on multiple platforms. What I think will happen is, is that websites are going to blend with apps. So they’re going to be kind of undistinguishable. So you’re already seeing sites definitely wanting to be mobile responsive instead of having separate mobile sites. The sites themselves are responsive and there’s a lot of apps on the sites themselves, and I think that’s going to continue. And you’re gonna see more of a blend in sites where they do become more like an app and an app becomes more like a site.

Ace Chapman:
Yeah, I definitely agree. I don’t want to be the person that doesn’t have enough foresight to say, “Oh no, everything’s going to stay the same forever.” But I don’t see websites going away. I do see just as an industry, websites and multiples are continuing to go up and the… in general, the demand for apps and buying those are going up. And so I think eventually we’ll see people that are combining the two. So you know when you’re selling a website, it’s also… has an app and more of a mobile component than just a mobile version of the website.

Justin Cooke:
Yeah, it’s interesting. I talked to quite a few app developers and I’d say five, six years ago, in developing apps, it was hot. If you got a winner app it would take off and yeah, you’d have some losers or whatever, but it was relatively easy to get an app that got some traction. But app developers today are having a miserable time with it. I mean it is like playing the lottery. So that’s like, I’m thinking about that, similar to the website builder perspective, right? The app developer, it’s really hard to get a winner, to get traction and you get to hear about the breakouts. But you don’t hear about the hundreds and thousands of developers that create these other apps that went nowhere.

But like you’re saying, there is still action for the hot app. So the market there is definitely picking up on the buy-and-sell side. So yeah, not so great right now for mobile app developers or builders, but the buying and selling action going on there is pretty good.

All right. What do you think, you wanna get into the episode now?

Ace Chapman:
Let’s do it.

One of the most frustrating things about being a seller is actually getting to the point where you get a deal agreed upon, you get it under contract and then something comes up. It throws off the buyer and they walk away from the deal. It happens and it’s really annoying. You know, I had this happen to me or my first couple of deals 15 years ago and realized I’ve got to come up with some ways to keep this from happening.

Justin Cooke:
Yeah. Let’s talk a little bit about who this show is for. And we were talking about this before the show. Is this for buyers or is this for sellers and it’s a little bit of both, right?

Ace Chapman:
Yeah, it is. So today we’re talking about the deal killers that a lot of times don’t pop up until you get into due diligence and you get into transferring the site. And it’s the things that keep a buyer awake at night the day before closing and caused them to wake up and say, “There’s no way I want to do this deal.”

So it’s really for both folks. For the seller, it gives them some things to watch out for so that they don’t end up on that other side of the deal with the buyer walking away. But for the buyer, it allows them to establish some of these things before they actually get the deal under contract and get into due diligence because it’s, it’s annoying, it’s work.

I mean, I know the seller feels like it’s annoying, but that buyer has now lost time and their deal search and put a lot of effort and putting the due diligence together and getting the money together and all that. And now for them to have to walk away from the deal isn’t something they’re excited about either. So this is for buyers and sellers.

Justin Cooke:
Yeah, there’s an opportunity cost that comes with buyers, right? They spent, you know, maybe days, weeks, months looking into this deal. And then for whatever reason they are forced to walk away. They just can’t do the deal because something wasn’t disclosed or they found something really late in due diligence. And it sucks for them, right? Because they could have been spending those hours, spending that time on another deal that would have closed. And you know, this is a common issue for buyers because they do have to go through all the steps and make sure everything pans out on the deals. And so that’s one of the reasons that’s messing with the small deals, it makes sense when you’re starting off, but you start to realize there’s a cost that comes with that a cost that comes with shopping deals that just doesn’t make it worth it to really kind of go for the really, really small deals.

But you know, from the seller’s perspective, you can just be draining, right? Just draining. When you get to the end of a deal, you think the deal is done and it falls apart. It is frustrating. And it can lead you to the point where you’re willing to take less the next time around or close quicker and take less money, because you’re just so sick of the process. And so I think some of the things we’re talking about today are going to help with that. And it honestly… it doesn’t help me, because when deals don’t close, as a broker, it’s expensive for us. Right? We don’t get paid, we don’t really get paid unless the deal goes through. So deals not going through is definitely not in our interest.

Ace Chapman:
Yeah, it is. I mean all the way around, I think each person kinda looks at it from their perspective. But nobody wins when a deal doesn’t close and the thing to really remember as the seller is they’re in probably the best position to make sure things go as smoothly as possible.

So it’s important for the seller to remember that the deal isn’t done until it closes. A lot of sellers focus a lot on getting the contract. Am I getting the terms that I want, and getting the price that I want? But at the end of day, the real goal is to get to closing.

So today we’re going to go over the top seven last minute deal killers and give you some pointers on how to make sure that you don’t fall into any of those traps and have a buyer walk away at the last minute. So let’s jump in. Yeah, go ahead.

Justin Cooke:
I’ve got one quick question for you Ace. When do you consider the deal being done? What’s the last step where you can pop the champagne and say this deal is over. It’s not just contract signing, it’s not… the buyers are saying, okay, yeah, let’s do it. What is the final step for you?

Ace Chapman:
The final step is the cash being wired and everything. Them accepting the wire, everything that goes through and the site is transferred ownership.

Justin Cooke:
Yeah. Money in the bank, baby. Right? It doesn’t really and they’re willing to do it. We’re going to do it. We’re really close and nope, until you’re paid, until the seller gets paid out until the borrower has complete control and access to the site, the deal is not done. All right. Let’s get into it.

Ace Chapman:
Yeah. Yeah. So a lot of these come from experience. Justin picked both of us and both had, and I had a recent experience where, we had a deal that it had way too many unnecessary employees and very loose relationships with contractors. And one of the things that is amazing about today is the fact that it’s easier than ever to create new contractor relationships and hire part-time employees. And a lot of times these folks don’t work on a regular basis. They may just come in and work on a specific thing for you or put together an infographic or whatever. And you’ve got a lot of these loose relationships where this guy does your business card to sign, the other guy does your blog article writing, and then you’ve got a person that’s doing social media. And when you’ve got a buyer that can just be overwhelming for them to get in and realize, yeah, your costs are really low on a monthly basis, but within, within that is a lot of headache of a people to manage and things to make sure that you’re keeping track of.

So it can be a deal killer because sometimes the buyer doesn’t realize that until you start to send the information over. And we had that recently where you know, we knew what the costs were associated with the contractors and employees, but then as we started to break that down and started to transfer things over to the seller, there were all these random relationships and then there was crossover between where the people were working in different projects and all those things.

And you’ve got to remember as a seller you want things as simple as possible. The more complicated a deal gets, the more likely it is to overwhelm the buyer and kill the deal.

Justin Cooke:
Ace, that’s really interesting. So first off, you’re right. Absolutely. And how easy it is to get contractors for really small jobs. And I was just thinking about my company right now, right? We have… just thinking about it right now. We have someone that’s doing roundup posts. We have someone that’s going to be doing some writing and editing forces, a different person. We have someone doing some onsite SEO changes. We have another person doing some offsite SEO force. Like we have all these different contractors doing these different things and it’s kind of all wrapped up under me.

And I think, I dunno, honestly, just listening to you talk made me realize I need to hire someone to replace myself for all these things that I’m doing right now. I really do, so because it’s so scattered. And if we tried to sell our business right now, it would be completely problematic with these 15 different contractors you’re working on for 15 different projects, it would be a mess.

It’s really helpful if you have, let’s say, it’s a smaller business, medium-sized business, and you’ve got three people that run it, right? They work… this person works with the social media contractors, the content contractors, but that person’s in charge and responsible for that piece. You have another person that’s responsible for all the customer service aspects of the business, right? So yes, they use other services and other people, but they’re the one in charge. So I think if you have employees or team members that have ownership of multiple contractors, that’s a lot better than you as the seller just running with those piecemeal contractors. You’re right, that can be messy. And if you want a more valuable business, there needs to be some kind of intellectual property and teams and process can add that intellectual property that makes the business more valuable.

Ace Chapman:
Absolutely. And a lot of this is just thinking about things from the buyer’s perspective because it is simple to the seller. You know, it’s not like the seller is thinking, “Oh man, I got to this whole biggest chaos.” I’m sure for you, you didn’t know who the people are. You’ve got those relationships, you’ve got them started and they’re working and you know you pay them and it’s a very simple thing. But from the buyer’s perspective, you know, just you explaining what all you’ve got going on, it’s like Whoa, that would absolutely you’re correct, terrify and intimidate a potential buyer.

Justin Cooke:
The second point we want to make out of the seven is likability comes into play, right? And how that comes into play. And this is an interesting one I’ve got, I don’t want to say too much, but we’ve got to deal right now where the likability is definitely coming into play in a bad way. So, and this is one of those things where you just don’t know if the buyers are gonna like the seller, if the sellers are gonna like the buyer until you started on due diligence and still you’re kind of doing the back and forth of getting more and more information and you just don’t figure that out until you kind of get into it.

But once you get into it, it comes down to why do business with other people that you know, like and trust, and if the other side doesn’t know like, or trust you or you don’t feel that way about them, that can really cause some problems that can break apart a deal that looked like it would’ve been good on paper. It was a win. But when you get those two personalities together, it’s just not a fit.

Ace Chapman:
Yeah, I’ve seen this over and over and it’s a tough thing, especially when I’m working with the buyer. We’ve a seller and there just is a little clash there and one of the easiest things to get into the mode… a lot of times it’s not so much, Oh man, you guys have to be best friends and buddies. It really is just that you guys are both working towards the same goal. One of the things that a seller has to remember is that it’s not a combat zone. You know, this is now a time to collaborate together. And a lot of times you’d get this thing where there’s the seller kind of feels like when? Does the buyer… asking for too much or I don’t want to go through all of this.

And you know, the thing to remember is that when you decided to sell your business, you basically agreed to go on the market and deal with people that want to buy as if they’re your potential customers to buy your business. And you’ve got to treat your buyer like a customer and walk them through the process and be as helpful as possible.

And then obviously on the buyer’s side, even if you’re annoyed with how long things are taking, trying to have some patience can really help and go a long way to get the deal done. Cause that’s what both people want at the end of the day.

Justin Cooke:
Well the worst thing to you or one of the really bad things as a seller when the buyer says yes and then they start to change the deal, right? So they’re like, “Okay, yes, let’s do the deal.”

And then they started getting to due diligence and the deal, what the seller originally had envisioned and believe was agreed on, has started to change. And looking at it from the buyer’s perspective, sometimes deals change. So what you thought was the case is you actually have to change the terms. I think some respect, right? So I’m being patient with the other person and trying to understand where they’re coming from, helps. So if as the buyer, you get into due diligence, you realize, “Hey, I need to change the terms of the [CRI 00:22:33], we can’t move forward as stated because of X, Y, or Z.”

You have to be, I think, sensitive to the other side, right? They already expect the deal to be done. And you have to do, I think over explain and dig into why that’s the case and not be a jerk about it really. Just don’t be a jerk about it, right? Explain it very clearly and where you’re coming from and that it’s a sticking point for you.

And yeah, it can get touchy. And I think that if you’re operating from a place of being helpful, being respectful to the other party, I think that can really help. But sometimes, conflicts just exist. And that’s, that’s one of the things that, as brokers, we sometimes deal with. We’ve had situations where one party was talking privately to us, talking about lawsuits and talking about this and that before the deal was even done. Before the deal was even done, several lawsuits and stuff.

As the seller, we had to calm him down a little bit and get them to, okay, no, let’s just get through the deal. Here’s what they’re trying to do. You’re missing the point. And you know, that can be really frustrating from our perspective. But again, if we’re able to get those deals done that seem like they’re not going well, that’s our competitive advantage. But especially if you’re not dealing with a broker, you gotta be cool, you gotta be cool with the other party if you want to do the deal.

Ace Chapman:
Absolutely. Absolutely. It goes such a long way. Just to be eloquent. One of the things that we do as a quick pointer on deals, when you get into a deal and you realize, this thing needs to change. Sometimes it’s best just to walk away instead of presenting a new deal. Because from the buyer’s perspective it seems like, “Okay, well, this isn’t what I thought, so let me change my offer.” But when you look at it from the seller’s perspective it’s “Oh man, we’re in the middle of thing and now you’re trying to renege.” The best thing is to say, “Hey, this isn’t what I thought, I need to walk away from the deal, unfortunately.”

And then a lot of times what you’ll find is the seller will come back and present you with a new option, especially if you clearly explain exactly why you’ve chosen to walk away and put some work into that. You know, even though you’re walking away from deal, you’ve already put in some work on due diligence. So really put some work into clearly explaining exactly why you’re walking away from the deal and that you’re happy to maybe renegotiate if they’re interested.

Justin Cooke:
Yeah, yeah, that makes sense. I need to walk away because of X, Y, Z. And then that gives the seller an opportunity to, to all of a sudden find their creativity in himself or herself and come back and say, “Oh, okay, well now we can negotiate.” Let them be the ones to come back and do that. Makes sense. Otherwise you run into a problem where you’re going to frustrate them.

And I think trying to be cool with the other person is important. In our company, we have a no asshole policy. We just don’t want to do business with assholes, like people that we, as brokers, don’t get along with or don’t think there’s a good match. And you know, we do break that rule sometimes. Every once in a while we’ll do that and it’s always miserable and frustrating. And there’s enough deals in the world to where you just don’t have to take on assholes.

I know some people like contractors, I have buddies that are contractors or they do consulting and they’d have an asshole fee, right? They’ll charge an extra 20% or 40% or whatever, but from our perspective, I just go on to do business with those people. You know, people that are just like that. If we’re that far missing each other, then there’s probably just not a good opportunity there.

Ace Chapman:
Got that same policy. I am quick to fire clients that… We just don’t get along, life is just [inaudible 00:25:54] too short to deal with assholes.

So let’s talk about number three. One of the things that in commerce deals and drop shipping deals may not take into consideration is, is the buyer going to get approved by my vendor or wholesaler? And honestly, sometimes it’s just the fact that the vendor or wholesaler requirements are way too stringent. So he knows if you don’t go to the wholesaler, you don’t go to the drop shipping company and established early on, hey, this is what I’m thinking about, what are you going to look for in a new buyer? And then you can communicate that to potential buyers. That can go a long way as far as just making sure that you get the buyer’s going to get approved.

I think some people think, “Oh well, I’ll just wait till the last minute and then try to force them to approve them and I don’t want to cause any problems early on by telling them, oh well, this is why it’s too… all of these stringent policies that my wholesaler has.”

But the truth is you’re not helping anything. You know, like we said at the top of this episode when it comes to deals, nothing matters until the wire goes through and you get your cash. So all you’re doing by not communicating those requirements is increasing the likelihood that it’s not going to close and you got to start all over so it ends up being more work for you, not less.

Justin Cooke:
Yeah. This is one of the things that guys are [inaudible 00:27:25] look at is the transferability of either the affiliate network or the suppliers, that kind of thing. Like, are there multiple suppliers out there? And yeah, I think that’s really important. I think that, as a buyer, you know it’s really difficult to get approved without supplier and you come on and you’re not able to get approved, obviously that’s a deal killer.

So as a seller, if you know that you may want to either talk to the supplier, you know, kind of explained the situation and what you’re looking to do and see if you can work out a deal where the buyer can come on. If it’s a very large company that’s outside of your control, an Amazon affiliate or something, making sure that they’re able to get approved and that’s something that they’re able to push through and they’re able to work on early on rather than waiting and waiting until the end of the deal.

And the fourth thing we want to talk about is a last minute decline in revenue or traffic. And this can definitely be a deal killer. Not always, but it can definitely change the price on a deal for sure. And sometimes this isn’t in the seller’s control right? Sometimes it’s just a seasonal thing or they’re taking a couple of weeks or you know, a month has been down or really they’re kind of in a spiral, a downward spiral and they don’t really know how to fix it.

But other times it is in their control. And the deals I’m talking about here, or when let’s say he’d been trying to solve for let’s say two to six months and they basically checked out after they finished the vetting process or getting all their information together, they’ve checked out of the business, they’re doing something else and they’re just no longer focused on the end. The revenue is in a decline because they’ve abandoned their business. I think that’s a really bad thing to do from a seller perspective because you’re going to have buyers come in that are gonna want crazy discounts. Look where the site’s going. Seller can’t keep it under control, can’t keep it profitable. So they’re gonna want some deep, steep discounts. And honestly, they’re probably deserved if you’ve been on a fairly heavy decline while you’ve been trying to sell the site.

Ace Chapman:
Yeah, it is one of those things that you try to prepare buyers for the fact that, listen, there are ebbs and flows in business and you can even go back into history and say, hey, you know, this went down here and that kind of thing. And sometimes a bar gets comfortable with that, but at the end of the day nobody wants to try to catch the falling knife. So when you got something going down, it’s just obviously scary, scarier than when something’s going up. So it’s a lot better if you can really work that deal and have the income and traffic and everything in kind of an upward pattern as opposed to situations where it’s going down and you’ve gotta convince the buyer that no, everything is okay.

Justin Cooke:
Yeah, there’s a buyer out there for almost any business and even if it’s a falling knife, even if it’s a turd, there are people out there that specifically shop for turds, but it’s a lot less, it’s a lot less, right? So if you’ve got a business that’s on the incline, you might have a bit of a bidding war, you’re going to get people that are interested and that’s when the buyers are sighing themselves going, okay, I guess I’ll beat that price and I guess I’ll pay more for it because it was a good business. I see where it’s going. It’s on an awesome trajectory and there’s just more buyers in that space. And as a seller, the thing you want to do is you want the most options, the most opportunities and the place where most buyers are going to be looking, are sites that are on an incline and that have growth potential. And it’s really based on a historical trajectory that’s positive for the business.

Ace Chapman:
So the next one that I want to talk about is another recent experience and its with pending legislation. A lot of times when we get into smaller deals, we don’t think about the fact that hey, there’s possibility that we could be impacted by laws changing. And we had a deal that you and I talked about on a recent podcast over at Empire Flippers where we had a deal that was a very awesome business. It was, the numbers were great, the multiple was less than two. It was a great opportunity and it was in an industry that basically like airbnb for pets, you can take your pet and have a pet sitter at somebody’s house, watch them while you’re on vacation. And so a great business model. The downside to the business model was we ended up finding out that in the process, we were very fortunate that some of the numbers started to look a little weird and we did some research and realized that there had been some legislation that passed on a state level, that basically regulated the pet sitting industry.

So you know… if state legislators are taking the time to regulate pet sitters, and they can regulate anything. So keeping in mind, hey, this is a risk here, is really valuable. And one of the things that we were able to do because we realize that is protect some. A lot of those started to come on the market as the states were… different states were releasing these laws and we were able to protect some clients from doing those deals, but because we realize, hey, this is something that’s happening in that industry.

So on both sides, I mean sometimes it’s better if you are the seller to just let the person know, hey, here’s what’s going on because I… even that first day it might have been salvageable because all it did was, it decreased the income a bit and so they could have said, hey, really the multiple, it’s going to be at three now because we’ve got these additional expenses due to the regulation. It has got to be some digital headaches and that kind of thing, but here’s what’s going on.

Justin Cooke:
Yeah, I think if you’re up front about it, it’s not necessarily going to throw the buyer off. From my perspective, if there’s pending legislation, it may be an issue, but it may not, right? I mean this is a really, really big example, but think of airbnb, right? They dealt with all kinds of legislative issues and they’re still dealing with those in terms of whether airbnb should be allowed and states and cities and that kind of thing. Now they got huge really quickly, which is I think they were able to kind of beat the turning tide and, and how it was viewed and how they legislated against it in some cases. So that probably helped. Whereas if you’re a smaller pet sitting service, maybe, maybe you don’t have the crazy billion dollar backing that airbnb did.

But I think it’s interesting and I think that even if there is legislation in that, let’s say, in that town or whatever, for whatever deal you’re doing, there may be opportunity outside of that town that a buyer’s coming once and they say, okay, yeah, that’s fine that it’s in that town or whatever and maybe that… I’ll want a discount on it. But I’m really planning on rolling this out across the country. I’m really are planning on rolling it out elsewhere so it’s not that big of a deal to me. So, so keep that in mind that it’s… it’s better to mention up front. So they find out later on the deal and what’s a bunch of terms have already been agreed to, the buyer may walk away, whereas if it’s mentioned up front, that’s something they can kind of take into account.

The six point when to talk about is when the seller is critical to the business. And this could be a problem. This is a situation where you have the seller and they just do everything, right? They are involved in everything and they are just doing everything in the business and from top to bottom, and this can be bad.

You can see this happen when you’re getting further along in due diligence and the seller almost like a braggy point is like, oh yeah, I go do this and I have this intimate knowledge of that. And because I had been in the industry for 15 years and things like that start to scare off a buyer, right? If I’m a buyer coming in and I’m talking to a seller who has this intimate knowledge of the industry, they’ve been involved 15 years and they have all this experience and they’re telling me that that’s their competitive advantage and I don’t have that, right? That’s like, what am I going to do? The business, how is the business is going to continue to run without the seller who’s critical to the business being involved?

So I may try to change the deal where I keep the seller involved longer than they wanted to. So this bragging, this is kind of bravado coming from the seller as they’re walking through the business and due diligence could end up biting them in the ass a bit.

Ace Chapman:
Yeah. It’s funny, I mean that as entrepreneurs, we all have to have some level of ego to think that, hey, I’m the guy to go out and do this. But when it comes to dealing with buyers, you have to kind of pull that back a little bit and not brag on yourself and your abilities and that kind of thing. And so this is definitely a place where humility and really kind of making, letting them know, hey anybody, I’m not special. You know, anybody could run this business and here’s why. That can definitely help get the deal done.

Justin Cooke:
Everyone likes to think they’re a special snowflake, but it’s… there’s nothing wrong with breaking it down saying, nope, yeah, no, I could be replaced. Here’s how it works. And that’s good. You don’t think about as an entrepreneur, you’d like to… you have a bit of an ego and you’re like, okay, well this business is built on how clever I am and how creative I am and how hard working I am. But ultimately, if it’s a good business, it’s been replaced by people that have their rules, right, in the business. And if it hasn’t been, then you need to do that to sell the business. That’s a much more sellable business, which is something we’ll talk about in other episodes as well.

Ace Chapman:
Yeah. Yeah. That’s the last one. Justin is a tough one for some sellers because it does get into a space where we live in the litigious society and sometimes there are these frivolous things that pop up, but we unfortunately, because of that we do have deals that fall through because a seller has a litigious past and you know there’s certain industries where just hey, lawsuits happen and that kind of thing.

Other times people have really were kind of malicious and deserve to be sued, and so a lot of times people want to kind of sweep that under the rug and say, you know, we’d not really talk about it cause like, hey, I didn’t deserve to go through that. I don’t want to talk about it. A tough thing about that is it’s a lot better to go ahead even if it… especially if it was something [inaudible 00:37:11], let’s just say, hey, here’s what happened. You know, just want to be really upfront about this and obviously you’ve got can search me in and find out details, but I want you to know about went through this lawsuit. Because finding that out and we’ve had these deals where it could be something that may not even be related to that business, but buyer starts to do due diligence on the seller and they uncover a couple of things. And that makes them a little nervous about dealing with the person. And so you being in control of how they view that is a lot better than them finding it on their own.

Justin Cooke:
So I really like that this is a thing. It’s… I gotta be honest with you man. I like it. I like the fact that, and I’m going to expose myself for being a creeper here, but when I’m doing a business deal with someone, I Google a man, I check them out. I try and see what their history is. And this is, you know, when any kind of like significant business deal, I want to know who I’m dealing with.

And if I do find some things from the other person that make me realize that they’re not the type of people that I want to do business with, I’ll pass on the deal. So it’s important to me that, and I think it’s great they’re able to do that. And I think whether you’re a buyer or seller or any kind of entrepreneur, it’s important to realize that your reputation follows you around like you were… 2015, we’re on the internet. It’s just… it’s going to follow you around. So character’s are really big thing in business and trust, right? So if you have these issues with trust or with your character from previous business deals, those are going to follow you around.

And like you mentioned addressing them upfront, not whining about them and in a way that, oh this person did this to me, that to me, ’cause that’s a turnoff too, right? Think of it like an interview where you don’t want to complain about your old boss. So you want to complain about your old customers, right? But kind of explaining the situation, explaining why it’s different. Today I think its important, but obviously the best thing to do is just avoid doing bad deals like that in the first place. But if you’ve got them on your record, yes, like you said, I think address it openly and honestly without whining and complaining about your old customers or partners or whatever, and then moving forward.

Ace Chapman:
Yeah, yeah, absolutely. All right, So hopefully these things help you, give you an idea, on the… for the sellers and the buyers. For the buyers, some things to watch out for, for the sellers, some things to prepare and let the buyer know up front. Because at the end of the day, it’s painful to do a lot of work, build trust, work through the deal, give a lot of information about your business, get through due diligence and then, a few days before the deal is supposed to be done, you get a message saying, oh no, they walked away. We got to start all the way back over. It’s easier and a lot more effective to just work with the person, be nice, be helpful, work through the process and understand that hey, it’s a process. It’s going to take some time.

Justin Cooke:
It sucks losing those big deals, Ace, it doesn’t matter which side of the fence you’re on, whether you’re a buyer or seller. When those things drop out, it is just painful. And we have a guy that works on our sales team and so, he’s looking on these deals and our overall kind of revenue and saying, okay, how many deals can be this month? We’re going to be out this quarter. And then when you see one fall off his pipeline, he’d just… it’s crushing. It’s crushing. It’s hurts me [inaudible 00:40:20] Right? I’m like looking at, Oh that was a big one. That’s not going to happen. And you know, there are some highs and lows that come with that too though too, when you like squeak one out that you didn’t think was going to happen too. So yeah, it just… it can be painful when you lose them, but it’s exhilarating when you get one to go through that you thought had no chance.

And I think, you know, as I mentioned before, I think character’s really important. I think working with people that, you know, like, and trust and trying to figure that out as soon as you can. I think that’s really important for both sides, right? No matter what side of the fence or on and making sure that you look at the different points that we talked about today to make sure that the deal is going to go through and it’s likely to go through a both on your side and on their side, will help.

And you know, it sucks having to go back to the market and start all over. It’s… it’s like dating, right? You don’t wanna go back. If you’ve been a longtime relationship going back and doing though that those first dates, just sounds… the fake smiles and the, hey, how are yous and yes, I care about what you’re talking about right now. Or you’re nodding your head like that just sucks, right? Yeah. So, so yeah, don’t, don’t do that. If you couldn’t finish closing the deal, close the deal.

Justin Cooke:
All right. Thanks so much for tuning into the Web Equity Show. We really appreciate, as we mentioned before, do check us out on iTunes and leave us a review if you thought the show was helpful to you. We’ll be back next week with another show. Thank you so much for listening.

Speaker 2:
Thanks for listening to The Web Equity Show. Now is your chance to be a part of the action. Go to www.webequityshow.com/gift and send us your business acquisition or exit question and have it answered on the show.

itunes sidebar subscribeStitcher-Subscribe-Button

 

Discussion

  • Hey Guys,

    Thanks for another good show and for the mention. Justin, we’re definitely bros!

    I wanted to add a couple reasons for sales falling through that I’ve seen over the years.
    Cold feet. I’ve unfortunately seen deals fall through on both the buy and sell side due to last minute jitters. The best way to combat this is to thoroughly cover due diligence prior to signing any legally binding documents, set reasonable expectations on what both sides are committing to (the terms of the deal, what each side will do after the sale, etc.), and to keep the lines of communication open at every stage of the process so any concerns can be quickly and thoroughly addressed.

    Due diligence issues in escrow. Some due diligence items can’t be covered until the transfer is done in escrow, as such some issues can come up when both sides are already committed. This would include vendor issues (as you covered), affiliate and 3rd party marketplaces not being fully transferrable or can’t get the same %s or pricing, or previously unmentioned expenses are discovered. While these issues can typically be avoided by good brokers who ask the right questions of the seller prior to listing, they do sometimes slip through the cracks and couldn’t have been discovered until the new owner takes over the biz.

    Tax concerns. Every deal has either money going out or money coming in so there are tax implications. One seller I know of decided it wasn’t worth the cash infusion on a sale as he would have had to pay a good % of it on taxes, so he ended up backing out last minute. In the US there are companies who specialize in tax deferment on capital gains, so it would be worth always checking in with an accountant as you prep for a sale to finalize.

    Looking forward to more episodes. Thanks guys!

Leave a Reply

Your email address will not be published. Required fields are marked *

Would You Like to Receive New Podcast
Episodes Directly to Your Email Inbox?

Enter your email address below