Has your business been up for sale for months now? Or maybe you are getting ready to sell your business. Thousands of businesses each year are on the market. However, nearly 80% of small business owners walk away rather than selling their business. Why you may ask?
As a business owner, you have spent years working in your business, growing it to the point you wish to exit. Now you are ready to move on to new things. After listing the business and waiting months even years, the day never comes. This can be devasting for a business owner. So why don’t most businesses sell if the owner is ready, willing, and able? There may be several reasons why below we will discuss a few of these.
Unrealistic Seller Expectations
The number one reason a business never sells is because of unrealistic expectations by the seller. Many sellers expect a quick and easy sale with a great return. As the owner, you may have spent years building this business and it likely holds a lot of value to you. However, you also come with a bias that your business is worth a premium. A buyer will not have the same feelings and won’t be willing to pay more than its market work.
A valuation expert can help you understand what others in your industry and geographical location have sold at. A professional valuation can also help you know exactly where you should be selling your business. Peak Business Valuation is a leading business appraiser in Utah. We work with small businesses across the country providing valuations prior to selling your business. Don’t let your emotions cloud your judgement. And keep in mind finding a buyer, closing in a week, and the sales process all take time.
Unrealistic Buyer Expectations
There are also unrealistic expectations on the side of the buyer. Without understanding how a valuation analyst looks at a company, buyers often pay more or less money than the business is actually worth. Overpaying for a business may hurt you down the road when you look for financing while underpaying may lead to a bad investment.
Sometimes buyers want the business for the least amount possible. This type of buyer throws out low-ball offers in hopes of finding a desperate business owner who bites. Falling on either side can be risky.
Pricing the Business too High
The selling price is one of the biggest barriers to not selling a business. A business is only worth what someone else is willing to pay for it. If you are getting interest, but the sell is not converting, take a look at the asking price. It may be you are listing the business higher than what a buyer is willing to pay for it.
An overpriced business will not be attractive to buyers in the market, especially if they have other options. This may cause potential buyers to not even reach out and inquire about the business.
On the other hand, a low price raises a red flag for some buyers. They may wonder what is wrong with the business and why the price is below market value.
It is best to get a professional valuation expert to analyze your business and help determine a range of values in which to price your business. The analyst will consider your industry, similar businesses, the economy, and your marketplace when determining the fair market value. The asking price and terms should make sense relative to the historical earnings of the business and its future outlook. Having a professional valuation can also help in the negotiation process and adjusting the selling price if it makes sense.
Messy Accounting and Records
Poor records and financial statements give a negative perception of the business. No buyer wants to see messy or outdated financials. This will hurt you significantly in the sales process and make a business unsellable. Before listing your business, be sure to review all your records and ensure they are complete and accurate. Most buyers will want some sort of financial picture of the business before making such a large investment. If they feel the business is misrepresented on paper, they will not consider buying it.
During the due diligence process, the potential buyer may ask to see a list of clients, suppliers, and/or contracts. Be prepared to hand these and all your financial statements over to the potential buyer. Most buyers will analyze these carefully. If it looks like you are trying to hide anything, it will likely put off buyers.
Find the Right Person to Represent your Business
Next, you want your business to be seen by the right people. Hiring an experienced and quality business advisor or broker can be invaluable. Business brokers often have a broad network of individuals or companies who are looking to buy. The advisor can also help market your business and increase the chance of it successfully selling. Take the time to interview several brokers before deciding which broker to list your business with.
Inflexibility in Terms and Conditions
When selling your business, flexibility in the payment terms and conditions is important. The more options you provide the buyer, the easier it will be to sell your business. A variety of financing options will attract a wider range of potential buyers. As the business owner, you can also offer to stay on for a short time or provide training to help smooth the transition to the new owners.
High Owner Involvement
Last, you want to create a business that runs independently of the owner. This will help the transition of ownership have a higher chance of success. High owner dependence makes a business less sellable. For more information on this see our article on Reducing Owner Dependence.
Many of these foreseeable problems can be avoided by adequate preparation to sell your company. Keep in mind, most businesses typically take between 9-12 months to sell, sometimes longer. Doing the above steps can help speed up the process.
The best way to get started is by obtaining a business valuation to understand how a potential buyer views your business. A valuation can also help you understand areas to focus on to increase the value of your business. Peak Business Valuation, a leading appraiser in Utah, is here to help provide expert help and advice. Questions are always welcome! Please reach out via email or by scheduling your free consultation below.
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