As an intermediary, I have many conversations with business owners about how much their business is worth. As these conversations progress, owners realize that it’s not how much they make, it’s how much they can keep that truly matters.
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Why Business Buyers Won’t Buy Your Business
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There can be many reasons why a business is unattractive to business buyers and fails to sell once it’s on the market. Based on my experience, I’ve summed up the top seven reasons and included suggestions regarding how to overcome these obstacles.
Business Is Overpriced
Business buyers won’t overpay to acquire a business unless they have no idea how to value a business. Astute buyers will walk away from a business that interests them if the business is priced too high.
To overcome this, it’s crucial to conduct a thorough valuation of the business and set a realistic and competitive fair market price before going to market. Consulting with an experienced business broker or a professional business appraiser can help you determine an appropriate asking price and avoid losing viable buyers.
Business Has Poor Financial Performance
Unless a buyer is specifically seeking distressed businesses for sale, they are only interested in businesses with recent strong financial performance. If the business’ revenue is declining year-over-year, has marginal net operating profit or inconsistent cash flow, you may be challenged to find a buyer.
Before going to market, focus on improving financial performance for two-to-three years. Buyers will focus heavily on the past 12 months’ financial records when evaluating the business for sale. Develop and track important financial Key Performance Indicators (KPIs) such as your Gross Profit Margin (GPM), reduce unnecessary overhead expenses, streamline operations to create efficiencies, and address any unresolved issues affecting financial performance.
Business Lacks Differentiation
If the business lacks a unique value proposition or fails to differentiate itself from competitors in a meaningful way, it may struggle to attract buyers.
To overcome this, emphasize the business’ unique selling points such as a strong brand, its loyal customer base, its innovative products or services, and/or its proprietary operating systems and technology.
If there is a high barrier-to-entry in your business or its industry, make that obvious to buyers. Highlighting these advantages can make the business more appealing to potential buyers.
Business Has Limited Growth Potential
Buyers seek businesses with growth potential. If the business is in a saturated market or has limited avenues for expansion, it will be less attractive to buyers.
Identify and present potential growth opportunities to buyers, such as untapped markets, expanded geographical territories, new product lines, unexplored marketing avenues, or potential synergies with other businesses. Demonstrating a clear growth strategy can enhance the business acquisition appeal to potential buyers. If you don’t showcase the business’ growth potential, buyers will not value your business for its future opportunities and your offer price will be less than it should be.
Business Is Operationally Dependent On Its Owners
If the business heavily relies on the owner (or even key personnel), it may raise concerns for potential buyers. Develop a succession plan and ensure that the business can operate independently of any specific individuals – especially the business owners and their family members.
Take the steps necessary to document standard operating procedures, cross-train employees, and delegate responsibilities to demonstrate that the business can smoothly transition to new ownership. One of the best ways to convince a buyer that your business can operate without its owners is to force yourself (and other key employees) to take extended vacations. Do this over the course of a few years and buyers will be more comfortable assuming the role of its owner.
Business Has Poor Reputation
Negative online reviews, a damaged reputation, or lack of market awareness can deter buyers.
Take steps to improve your business’ perception in the eyes of its customers and employees by addressing any negative feedback, investing in marketing programs, social media platforms and your web presence, focusing on public relations efforts, and showcasing positive customer and workplace experiences. Building a strong online presence and engaging with customers, vendors and industry leaders will boost the business’ reputation and ensure your potential buyers will be excited about the possibility of becoming its new owner.
Business Has Unresolved Legal, Tax Or Regulatory Issues
If the business has unresolved legal disputes, pending litigation, unfiled and/or unpaid taxes, or regulatory compliance problems, it will very likely scare off potential buyers. Resolve any outstanding legal or compliance issues before listing the business for sale.
Engage with legal professionals to ensure all necessary licenses, permits, and documentation are in order, providing a clean and attractive acquisition opportunity. Doing this type of proactive legal and tax clearances checkup in advance of going to market will go a long way to making the due diligence process less daunting and uneventful.
In Conclusion
Remember that each business is unique, and the specific challenges may vary. While it’s quite common to find businesses for sale with more than one of the problems defined in this post, it’s not uncommon for the presence of just one of these reasons businesses don’t sell to derail its sale. You don’t have to allow that happen.
It’s advisable to consult with professionals, such as business brokers, exit planners, M&A attorneys or accountants who are familiar with the issues business owners typically face when selling a business, to provide tailored advice based on your specific circumstances.
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What Happens to PPP Loan When Selling a Business
The Small Business Administration (SBA) issued a Procedural Notice on October 2, 2020 which offers business owners and lenders guidance on how Paycheck Protection Program (PPP) Loans are to be handled when a business has a change in ownership.
This post summarizes the notice and includes an Infographic to assist business owners. It includes the following topic:
When does a Business Sale Require the SBA’s Approval
Does a Business Sale Require the PPP Lender’s Approval or Notification
Required Steps Pre and Post-Closing for PPP Borrowers
SBA Timeframe to Approve a Sale or Merger when a PPP Loan Transfers
Does the EIDL Grant Impose Additional Steps When Selling a Business
Closing Business Deals in the COVID-19 Era
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3 Steps To Increase Your Business Selling Price
When a business owner begins to negotiate the sale of his or her business with buyers for the first time, he or she will inevitably face a difference between the buyer’s offer price and the desired selling price. It’s at this point when a lively debate between the parties will occur over the underlying reasons for the business’s asking price being what it is. At this time a seller will be well-served if able to offer justification for an increased business valuation and a higher business selling price.
What Does it Take to Exit Your Business – Is it Good Luck?
Perhaps you are one of those business owners who feels you have plenty of time to think about exiting your business. You consider yourself lucky, and whenever you feel it’s time to leave, you will be able to do so with ease.
Why it may not be so – This is not one of those articles about how long it takes to leave a business, or how hard and expensive it can be. Instead it’s about the false impression many business owners have of life after the business – all wine and roses (PS it’s not).
Liquidated Damages Provisions in the Sale of a Business
When things go wrong with the sale of a business the parties involved look for remedies in the liquidated damages provisions established in the purchase agreement. Such provisions are included when a purchase agreement has been signed in advance of an actual closing when the business is transferred and a purchase price is paid.
Escrow Agent in the Sale of a Business
When a business is about to be sold, the parties to the sale may find it beneficial to establish an escrow agent to handle the transfer of certain assets and cash between the buyer and seller. Many times the parties agree to use the escrow account held by one of the party’s business attorneys. However, in many cases the parties prefer to hire an independent escrow agent to handle the assets and cash that will change hands.