18 March 2024: Selling a Business: “Why Won’t Mine Sell?”
“Why won’t mine sell?”
In our business – advising business owners about selling their business – we get that question more often than we’d like.
We get it from business owners who try to sell their business themselves – or from those who’ve hired a real estate agent to try to sell it. We get a variation of that question several times a year from real estate agents that have listed businesses for sale without having any idea what the business they’re trying to sell is worth or how to market it.
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There are many reasons businesses don’t sell.
We did a statistics-filled post about this a few years ago and even followed that up with a three-part series – Part 1, 2 and 3 – a year or two later. But the question continues to arise so, aside from the deeper dives you’ll find at the above links, here’s a few reasons. For more detail, head to one of the links.
Valuation: Business owners are notorious for having an exaggerated opinion of their business’ value. This is often the result of emotional attachment. The business made possible an upper-class lifestyle for the owner and his/her spouse, the education of X number of children, a couple of nice cars, a waterfront vacation house complete with 28′ boat and more.
And the owner worked long and hard for all that. But the business’ numbers are what you’re selling and those numbers tell us what the business will probably fetch in the marketplace. Get it valued by a professional before bringing it to market. You may or may not be happy with the number but you’ll know where you need to be. And if you expect more than it’s worth, you’ll know why it won’t sell.
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Courses! Courses! Courses!
Many of you have asked if our Flagship Course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, could be made available on a module-by-module basis. Instead of enrolling in the complete course, could you enroll only in the module(s) you wanted? We’re happy to report that this is now possible.
We’ve broken our Flagship into six separate modules (or module groups) to give you all the flexibility you need to learn only what you want to learn – and we’ve moved them all over to the new Brokers Academy in The Brokers Roundtable℠ . The Flagship is still available but the modules are now available individually.
You don’t need to be a Member of The Brokers Roundtable℠ to access any of these courses but if you are, you’ll receive a 20% discount on any course you enroll in. If you’re not yet a member of The Brokers Roundtable℠, you can learn more – and get access to all the talent and resources – here.
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Crummy Records: Inadequate or disorganized financial records can be a major red flag for buyers. They need clear and accurate financial information to assess the business’s health and potential profitability. They also need details on all contracts, leases, vendors , clients and, it often seems, what political party you affiliate with and your shoe size.
Crummy records has two effects: 1) they can confuse a buyer and make all subsequent information received from the owner suspect, and; 2) they engender distrust of the seller in the potential buyer. Records must be clear, coherent and make sense. If yours aren’t you’re at a disadvantage from the starting line.
Owner Dependence: If the business is dependent on the current owner, it is a major concern for buyers. A buyer will worry about customers leaving with the owner. This is often the case with small businesses where the owner is the primary person interacting with customers, clients and vendors. The importance of having a manager or management team in place cannot be overstated.
Customer Concentration: If one client or customer accounts for more than 20% of the business’ revenue, buyers start to worry. This is particularly true if the basis of that revenue is the personal relationship between the two companies’ respective owners. A member of my family was in the wholesale business providing specialty piping. Over the years, he developed a close relationship with a customer who eventually came to represent almost 90% of his revenue. But as happens to us all, the customer got old, a little sick and decided to retire. You might be able to imagine the impact on the value of my family member’s business.
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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Legal and Environmental: Are there any unresolved legal or environmental issues? Are there any disputes with vendors or customers? Any disputes among multiple owners of the business? Any of these can keep a business from selling. Get the legal issues settled. Negotiate a settlement on any financial, warranty or credit disputes. Get them off the table before coming to market. Otherwise, they’ll turn up during due diligence and kill any possible deal.
Operational Problems: Similar to legal and environmental, if the technology is outdated, if there’s operational inefficiency or a management team that is not up to the task of running the business, buyers will walk. It’s a rare buyer that wants to walk into a business that needs problems fixed at the outset.
Basic Appearance: If the physical assets of the business (buildings, equipment, vehicles, even the coffee machine) are in poor condition, it can negatively impact a buyer’s first impression and perceived value of the business. What does your business look like? Is the outside clean, organized and looking prosperous or does the place look like a dump? Some people feel that, if the numbers look good, the business’ physical appearance takes a back seat. Not so. Though that graphic to left might be a slight exaggeration, a buyer wants to feel proud to be the owner of whatever business he or she ends up buying. We did a podcast several years ago on this very topic. It’s worth a listen.
Ill-advised Representation: Our oft-repeated boogyman. A business owner trying to sell their business themself is remarkably ill-advised. Listing it for sale with a real estate agent – or a dentist or a Walmart checkout clerk are equally inappropriate for that matter – is arguably worse. Get people who know what they’re doing involved and get them involved early.
The Bottom Line
The list above is not all inclusive. There are dozens of reasons a business won’t sell and if you don’t have an experienced team advising you, you’re likely to encounter most of them over the many months you’ll spend in what will almost certainly be an unpleasant experience.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at
jo*@Wo*******************.com
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If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at
jo*@Wo*******************.com