Selling Your Business: Is It Sell-able?
2 June 2025: Selling Your Business: Is It Sellable?
With a tagline that goes. “Every Business that doesn’t fail will sell…Every one!”, you’d thing that the question in that headline would not be necessary. But the reality is that some businesses may not be sell-able in the normal sense of the term.
For example, a business the assets of which are worth more than the income derived from those assets suggests that the value lies in the assets, not the business. Let’s start with that example as we look at some of the conditions that could, theoretically render a business unsellable.
Profitability
Businesses derive their value from two general sources: 1) the value of their assets and 2) the value of the net earnings those assets generate.
Our office was recently engaged to value a business only to discover during the valuation process that the business’ assets were significantly more valuable than the revenue they generated. Our advice to the owners was to offer the assets rather then the business.
To be clear, “assets” generally include the business’ name and other intellectual property (IP) so some of those assets – website, phone number, social media accounts and similar – may have little to no value to a buyer. But the FF&E (furniture, fixtures and equipment), inventory, real estate, existing contracts, etc. may have an aggregate value that exceeds the value of the net earnings they generate.
It’s important to note that such assets, especially the inventory and FF&E have two values: “in-place” and “relocated”. (This article goes into detail to explain the difference and how some assets lose value when relocated.)
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 cousin of mine 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. He decided it was time to sell his business.
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The customer realized that the sale would likely have a material impact on my cousin’s business and gave my cousin a full year’s warning that he was planning to sell. But the business was a specialty operation and other suppliers were eager to get in the door.
New owners came in and looked for ways to streamline and reduce costs. You might be able to imagine the impact on the value of my cousin’s business.
Owner Dependence
If the business is dependent on the current owner, it is a major concern for buyers. A buyer will worry about customers loyalty is really loyalty to the current owner and the risk of them leaving once the owner sells is high. 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.
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REALTORS! Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Don’t Miss Out on the “Silver Tsunami”!
We recently were engaged to value a highly profitable service business as the owner was anticipating exiting the business in the next year or two. We received all the financial data from our client’s outside accountants and valued the business at about $1.3M. It was during the course of this valuation process that we learned that the business owner was the driver of the majority of the business’ revenue. (The full story is told in this article.)
The resulting conversation revolved around how far annual revenue was likely to fall under new ownership, what that would do to value and what options existed to mitigate this problem. But these are the kinds of issues that must be addressed when selling your business.
The Bottom Line
There are many other factors that impact the “sellability” of a business, including:
- Is the industry expanding or contracting?
- Operational efficiency
- The business’ target demographic: growing or declining?
- The geographic location of the business; will it appeal to a large pool of buyers?
- The legal environment for what the business does/provides
- The availability of financing and the willingness of the seller to participate in financing.
When selling your business, assessing its “sellability” is an important first step. Knowing what its sellability is may determine the path you take and the likelihood of a successful sale. It could also impact your price expectation and the amount of time needed to find a qualified, serious buyer.
But recognizing what “sellability” means is important from the broker’s standpoint because explaining this to a client is a critical element in managing the client’s expectations. As is the case with the example at the very beginning of this post, if the assets of a business are worth more than the net earnings they generate for the owner, it would make sense to position the engagement as a sale of the business’ assets. (Please note that this definition of an asset sale is very different from this definition.)
“Your cannot afford to make the mistake of thinking you cannot be replaced”
– Frank Irving Fletcher
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 1,000 in the world. He can be reached at
jo*@Wo*******************.com