Why Businesses Don’t Sell: Part 2
05 September 2022: Why Businesses Don’t Sell: Part 2
In last week’s post, I recapped an experience I had several years ago on a panel with eight or 10 other business brokers about why businesses don’t sell. Those professionals each rattled off six or eight – or more! – reasons that they had experienced in their respective practices. We ended up with more than two dozen reasons why, in the experience of these professional business brokers, businesses don’t sell.
But the surprising thing was that though we had eight or 10 lists with seven or more reasons on each, three specific reasons appeared on every list.
This is the second in this three-part series in which we discuss each of the top three reasons businesses don’t sell. Last week we tackled the Number 1 reason: price. This post is about reason Number 2.
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Poor Representation
It probably doesn’t surprise anyone with a three-digit IQ – a group that undoubtedly includes every reader of this weekly missive – that to get any job done properly, the proper tools are required.
None of you would hire someone to represent you in a court of law if that someone didn’t have a law degree. Nor would you hire a roofer to build a road – or vice-versa. And unless you were a lawyer – or a roofer or road builder – you certainly wouldn’t try to perform any of those specialized tasks yourself.
But for some inexplicable reason, business owners try both of these approaches – selling their business themselves and hiring someone without the necessary expertise – when it comes time to sell their 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.
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Real Estate Agents
We’re amazed at how often business owners hire real estate agents to sell their business. Part of that amazement derives from the number of times we get calls from realtors asking for our help after they’ve spent 18 months or more trying to sell a business. And they simply can’t understand why that business won’t sell.
It seems inconceivable to them that the business may be priced incorrectly. (When we ask for the price justification, we usually hear, “That’s what the seller wants.”) But how could it be otherwise if they don’t know how to value and then price a business.
It seems inconceivable to them that no leads are coming in. But how could it be otherwise when they list the business in their local real estate multiple listing service – where no one in the history of the world has ever gone to find a business to buy?
Real estate agents have no more business selling businesses than they have selling heavy equipment – or representing their clients in court. They don’t know how to value or price what they’re trying to sell. They don’t know who the likely buyers are nor where to find them. They don’t know how to market a business while maintaining confidentiality. They don’t know how to qualify the buyers. They’re unfamiliar with the dozens of aspects of a deal that are subject to negotiations. They don’t know the many ways a deal can be structured financially.
But how can this be any different? In spite of their success in selling real estate, even the most successful agents have no training whatsoever in how to value, market, negotiate, finance and ultimately sell businesses – or farm equipment or oil leases or timber rights or anything other than houses?
And, unfortunately for business owners, this doesn’t dissuade most real estate agents from happily trying to sell businesses – though they would never “happily try to sell” farm equipment or oil leases or timber rights.
Most real estate agents – whether in the U.S. or elsewhere – are professional and talented at what they’ve been trained to do – selling real estate. But like anybody else, they are decidedly unprofessional and unknowledgeable about things that they’re not trained to do – such as selling farm equipment or oil leases or timber rights; or businesses.
FSBOs (For Sale By Owner)
Business owners trying to selling their own business has caused even more head-scratching in our world than business owners hiring a real estate agent to sell their business.
Not only will all of the same shortcomings obtain – no idea how to value or price a business, no idea how to market a business while maintaining confidentiality or how to qualify the buyers. Business owners are also unfamiliar with the dozens of aspects of a deal that are subject to negotiations and the many ways a deal can be structured financially.
And if all that wasn’t enough to dissuade an owner from trying to sell their business themself, there’s the added responsibility of actually running their business while it’s being marketed.
Selling a business is a complex, time-consuming process. In order to reap the highest value – price – for the business at sale, it must be operating with maximum efficiency. The more time the owner spends trying to sell their business, the less time is spent on running that business. That change of focus will almost always be reflected in the business’ performance – and, thus, its value.
The Bottom Line
When you’re headed to court for anything more serious than a traffic offense, you hire a lawyer to represent you. When your roof is damaged during a weather event, you hire a roofer to repair it. When your knee needs replacement, you hire an ortho specialist to do the job. To my knowledge, no one has ever hired a real estate agent to do any of these specialized tasks. And I’m hard-pressed to imagine a business owner thinking they could perform those tasks themselves.
Why then would a business owner hire a real estate agent to sell their business – or try to sell it themself?
When selling a business, proper representation is key – nearly as important as pricing it correctly. This is no different than when going to court, repairing a roof or replacing your knee. To ensure the most positive results, hire someone who knows how.
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.
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 500 in the world. He can be reached at jo*@Wo*******************.com