As HVAC business brokers, we know that deal cancellations happen. It is part of the business world, and it’s important to know that it is OK if this happens to you when selling your HVAC business. A business sale cancellation could occur for a variety of reasons. Sometimes, it has to do with financing, sometimes buyer’s remorse, or other unforeseen circumstances. Life is sometimes very unpredictable, but the four most common reasons for a buyer to cancel the sale in the middle of a deal include:
1. Discontentment Between Parties
Emotions can often become entangled in business decisions. It’s essential to separate your feelings from your logical business sense. Sometimes, business deals fall apart because of disagreements between buyers and sellers or disputes between owners, shareholders, or other members.
Co-owners, partners, and shareholders must work together to ensure everyone is on the same page. What is the goal you are all working toward? Make sure you’re all in agreement about your selling strategy. If you don’t work these things out, the selling process could be a disaster and fall through. Co-sellers must also be able to negotiate and compromise with their buyers to move forward with a purchase agreement. Sort everything out ahead of time to avoid a sale cancellation and unnecessary contention.
2. Financing Issues
A buyer may have issues with financing, leading to them backing out and canceling the sale. A handful of HVAC business sale transactions entail bank financing through loan programs for small businesses. These business loans are much harder to acquire than real estate loans and can cause headaches.
Lenders require a lot from the business owner—loads of information. They need business information, borrower details, and commercial real estate items (if that applies) to approve the loans. It can take months from the time parties submit their information for the bank to review and approve it.
Often, the fate of a potential buyer lies in their lender’s hands. That lender has a lot of power. Underwriters could refuse a buyer’s final loan if the item didn’t meet the requirements. The buyer’s loan may get denied, leaving them no choice but to back out of the sale.
3. Third-Party Delays
The HVAC business sale process involves a lot of waiting. Buyers sometimes walk away from a business sale when their patience runs out, or they encounter disruptions by parties outside of the buyers or sellers. There may be setbacks in closing an HVAC business sale because the landlord takes forever to validate and approve the prospective owner taking over the lease. Or a supplier or vendor doesn’t give the buyer the contract. Sometimes, circumstances are out of the buyer’s and seller’s control.
In some cases, you can fix these disruptions, and a buyer will wait out the delays. Other times, the delays burn out the buyer, and they get fed up. They may back out because they don’t think you’ll be able to resolve the disruptions, and they feel like it’s the only option.
4. The Deal Dies
Talk about defeat. Sometimes, sellers put so much sweat and tears into negotiations and deal-making, and the deal just winds up dying. Sometimes, a buyer’s being overwhelmed causes them to leave the table. Other times, the seller has second thoughts and walks away from the deal. It happens.
Often, the seller can’t legally walk away from the signed agreement. Their signed documents prevent them. Buyers usually have the legal right to leave a sale if they change their mind. It depends on where you live and what documents you signed. People may cancel deals for personal reasons such as a tragedy, recent change in finances, or terminal illness.
How to Handle a Sale Cancellation
We can’t control other people, and predicting what will happen after selling your HVAC business is impossible. Here are some tips for handling unexpected disruptions head-on:
Lower the Sale Price
A common strategy among sellers to keep a deal moving forward is to lower the purchasing amount. Bank underwriters might require a seller to reduce their sale price, enabling them to provide the necessary money to the buyer. The buyer sometimes requests compensation for major issues they discover about the company during the due diligence. The seller might lower the acquisition price to allow the transaction to proceed as compensation.
Add a Sale Guarantee
As the seller, if you wait a significant amount of time for Accounts Receivable or a contract to be funded, you should place a guarantee on the sale. You should lower the price or add a seller guarantee to close the deal. If the contingency isn’t met, such as sales not reaching a target, the seller guarantees a decreased price or will pay back the buyer.
Set up a Holdback
A holdback allows parties to put a portion of the sale price into an escrow account. The funds would be returned to the buyer if the business does not receive the funds. This causes a reduction in the purchasing price. The buyer will get that money back if the company receives the funds.
Unexpected roadblocks are our specialty. So much goes into HVAC acquisitions, and a buyer may walk away from a sale for many reasons. Knowing how to handle business sale disruptions can help avoid devastation. Preparing yourself to bounce back without skipping a beat if a buyer does walk away will make a world of difference during the complicated process of selling your HVAC business.
