The Top 5 Deal Killers (And How Buyers And Sellers Can Avoid Them)
By: Branden Schmidt
Tags: Entrepreneurship, Online Business, Digital Asset, Business, Investing

The Top 5 Deal Killers (And How Buyers And Sellers Can Avoid Them)

Photo by Nick Fewings on Unsplash

When buying or selling an online business, you should set a few expectations prior to executing either one.

First, you need to understand that not every buyer or seller is going to know every last detail of your business like you do. This could involve anything from making sure buyers are aware that your business partner is on board with the planned exit, to composing a detailed strategy on how you would personally grow this acquisition.

Because we have seen many digital asset deals fail for one reason or another (sudden drops in traffic, revenue, etc.), we wanted to present the most common deal killers to help you avoid them if at all possible. Not every buyer is the same, and that goes for sellers as well, but with this guide you should be able to ensure your deal goes as planned no matter which side you are on. Here are our top five (in no particular order) most common deal killers and how you can avoid them:

1. Too Many Employees/Freelancers Attached to the Business

Digital property buyers are looking to acquire an asset with the fewest number of moving parts possible. The fewer hands in the project they need to worry about on a daily basis, the better. Buyers do not want to take on a full-time job managing more than a handful of employees, so if possible, keep the amount of VAs you have on the payroll to a minimum or hire a team manager. While you certainly want to avoid an all-out hiring spree before an exit, you can focus on hiring team members who can engage with multiple aspects of the business rather than hiring a bunch of workers who only handle one task each.

As a buyer, you need to use the due diligence period to think about whether you are prepared to manage the number of employees required to maintain the asset after the deal is done. Too often, buyers overexert themselves trying to manage more employees than they can handle. If the business doesn’t already have a manager, consider this your golden ticket to ensuring that when you do take the business over, you can focus on growth rather than struggling to maintain what is already in motion.

2. Personality Clashes

You most likely won’t experience this until you reach the negotiations step of the acquisition process, but this is where things can sometimes become awkward for both the buyer and seller. The acquisition might match your business goals, but the person on the other side of the deal is not the best fit to do business with. We have seen deals deteriorate as tensions rise based on a buyer wanting to take the brand in a completely different direction which the seller was not prepared for. Negotiations are where you really start to get a feel for the other party’s personality, and if these don’t align (especially without some type of mitigator such as a broker), the deal can go dead in the water quickly.

One way you can avoid these personality clashes during a business deal is to enter the negotiation process with an open mind and preferably some help. Remember, not everyone is going to prioritize your best interests when structuring a private deal, so don’t take anything personally. If the deal doesn’t match your business goals, move on to the next one that will. We have a strict “no asshole” policy, so we don’t tolerate those who are hard to do business with within our ecosphere, but remember this is not always the case when venturing into private acquisition territory.

Personality aside, the more open you are to potential offers during the negotiation process, the better off you will be in closing the deal sooner than later. This could come in the form of accepting an earnout to cover the cost of the sales price, to structuring inventory payments with interest to help ease risk during the migration period.

3. Exclusive Partnerships that Don’t Carry Over

If a business acquisition looks promising on the outside, the buyer will certainly be in shock when a supplier suddenly won’t do business with a new owner. This is an issue that would need to be resolved immediately if you ever decided to exit your business. Suppliers and manufacturers are not the only ones you need to ensure will continue with the business prior to an exit. Any affiliate accounts or ad networks your asset is actively using to generate revenue will also need to be transferred to the new owner, so make sure this can be accomplished well before your planned listing date.

Suppliers and wholesalers will often build good relationships with a seller, so when you begin the negotiation process as a buyer, make sure that you have contracts or some type of confirmation that these accounts will remain intact. These suppliers or ad networks may have strict requirements before transferring an account to a new owner. Another issue you may encounter is that a supplier may not trust the new owner or like the direction they are taking the product line. You never know what the protocol may be when it comes to transferring these types of accounts, so whether you’re buying or selling, make sure you have confirmed that these accounts are transferable to ensure that the deal will go according to plan.

4. Changes in Revenue and Traffic

This may be the most obvious deal killer on the list, but it is worth mentioning since it is important to achieving your desired exit goals. Sometimes, a sudden drop in revenue or traffic is out of the seller’s hands due to the nature of digital assets. For example, the seasonality of some assets may make this unavoidable. Generating a year’s worth of profit and loss (P&L) data will make these variations less of a deal killer than they would be in a business that has only been around for a few months.

Most digital asset buyers will expect slight changes in revenue and profits, but larger shifts in traffic and revenue will certainly bring any deal in progress to a screeching halt. We have a strict verification period in which the business needs to generate 50% or more of the listed monthly profits, or we will reverse the deal and return the funds to the buyer’s account.

Sudden drops in these numbers don’t happen often, but they are possible. They most often occur when a seller lists their asset for sale and thinks they can stop working on the business while it is on the market. A seller neglecting the business while it is listed on the market is one of the most common pitfalls we see sellers struggle with when a deal fails to reach completion. We stress to our sellers that it is their responsibility to continue running the business as they normally would until the deal is finished and the funds are in their account.

5. The Skill Bar is Raised Too High

In contrast to the first deal killer in this list, a seller who is the only one working on the business and has uncommon skills required to maintain the asset will have a difficult time securing a deal. Buyers often outsource a majority of their work to VAs, so if you are the brains behind the whole asset, a buyer will have a more difficult time delegating these operations to their team. To avoid this issue when coming to terms with a buyer, have a set of standard operating procedures (SOPs) included with the asset to ease the buyer’s learning curve. Often, a simple set of SOPs detailing the operations in place for the business will be the difference between having buyers avoid your acquisition like the plague and starting a bidding war among a group of hungry investors.

As a buyer, you need to make sure that your own skill set is up to par with the asset’s requirements. If you are a first-time buyer unfamiliar with a core skill required to maintain the business, consider hiring someone with this skill prior to fully taking over. This won’t usually stop a deal from going through, but taking on more than you can handle as a buyer without proper help may end up killing the business, which would be even worse.

Knowing how you can avoid these common deal killers will help you to achieve more successful acquisitions as a buyer or exit for more than you anticipated as a seller. No matter which side of the table you happen to be sitting on, following this guide will give you the upper hand to ensure your deal goes through now having better insight in how to prepare well ahead.

If you haven’t already, be sure to register for an account on our marketplace before you buy or sell a digital asset of your own. Once registered, you will have access to the largest curated marketplace for both digital property buyers and sellers. Here, you will be assigned a business advisor to help you get the best deal possible while avoiding these common deal killers.