- How to set your price and prevent disappointments
- Getting your financial records ready for a faster sale
- How to hire the right advisors to help you successfully close a deal
- How to systemize your business and make it attractive to buyers
- Streamlining your exit strategy for greater success
As a business owner, you expect to get the best price for your business when selling it. Also, you want to complete the sale process quickly. But this can easily turn into an arduous process for you.
For one or a combination of the reasons listed in this article, your business may not be attractive to buyers. We’ll explain why and show you how to solve them.
7 Common Reasons It is Hard to Sell Your Business
According to the City National Small Business Report, only half of the business owners planning to sell their business have an exit strategy in place.
Not just this, but more than half of business owners don’t have a concrete professionally prepared exit strategy of their own. This can lead to complications when you decide to sell and cause deals to fall apart.
If the crucial question on your mind is “Why won’t my business sell?”, the answer usually is one underlying reason: No exit strategy.
There are more reasons. But thankfully, we don’t just list them; we give you solutions. Now, you can start today to build a stronger strategy to successfully sell your business at the price you want.
1. Disorganized Financial Records
What is the most important thing a buyer will analyze to understand a business’s financial health? The financial statements and records.
Most serious buyers will not show an interest in your business if you have untidy financial books. A prospective buyer interested in your business will be eager to know how much your business can make after they take ownership of it.
If your financial books and records are too mysterious to analyze, it will turn off the interested buyer.
Acquisitions are not just about signing a contract, but it includes a fair disclosure of the company’s information. You will have to provide 3 to 5 years of financial records, profit reports, and assets management records for due diligence during the selling process.
Businesses with financials not duly prepared by an accountant will appear as a risky investment, making it hard to sell. It can also put a question mark on your tax returns and liabilities. These factors can also impact the valuation of your business.
How to fix it
Start as soon as possible to get your finances tidy by hiring the services of professional bookkeepers or accountants. Good bookkeeping and internal control will make you worry-free for the sale process in the future.
Of course, you need to know what a buyer is looking for to start the process.
A buyer will watch out for any issues in the financial statement, your inventory management process, account receivable collections, account payable clearance, etc.
So get everything in place by following best accounting practices and up-to-date internal controls for fair representation of financial information.
2. Your Business is Too Dependent On You
The problem with most small companies is that their business is overly dependent on the owner. They are the ones making deals, meeting prospects, and managing all the critical roles of business.
The main reason behind this dependency is mostly staffing problems, business type, or owners involving too many family members in the business. All of this points to a high key-man risk for a potential buyer. This means that without the current owner, the stability of the company will not remain.
This dependence is like rust on your business that makes it weaker every day from a selling perspective. Most acquisition entrepreneurs look for a business with sustainable leadership, defined hierarchy, and succession policy.
Therefore, question yourself today: Will your business be able to survive if you quit?
If the answer is no, it might be extra difficult to sell your business.
How to fix it
You need to make a succession plan which closely focuses on your internal and external customer relationships.
Your internal customers are employees, and external customers are, of course, your buyers. In short, make every policy in a due manner that your business can run even when you’re not there.
What is a good succession plan?
A good succession plan will focus on:
- Human resource management (staffing, training, recruiting, managerial roles)
- Your customer relationships (dealing with customers, attracting prospects, closing deals)
- Legal and financial matters, as well
Bottom line: Equip your business with the right people that can run it efficiently in your absence. This way a buyer will feel comfortable taking it off your hands since the business won’t die when you leave.
3. Unrealistic Valuation
One reason business owners find it hard to get a buyer for their company is the unrealistic valuation of the business. Unrealistic can go both ways — too high or too low.
Let’s talk about asking for too much…
The prospective buyers are interested in your cash flows. They won’t get affected by your customer base, business location, or future potential if all these factors do not translate into business profits.
On the other hand, setting a price too low can make them think that there might be something wrong with the business.
How to fix it
You don’t have to get out of your bed and sit straight on the deal table. Get prepared and do your research before valuation. Understand your industry and business type. Study similar businesses, and then go for price negotiation with your buyers.
Business valuation is like the glue that will keep the entire process aligned. Therefore, hire professionals and consultants for a fair valuation of your business assets and the business itself. Acquira can help you with valuation as well if you are ready to take that step.
4. Too Many People Involved in the Deal
Closing a deal with one owner is not an easy job. Imagine if there are three, four, or five business stakeholders. You will need to have the approval of all members if you’re not a controlling shareholder of the company.
Even if you are, the negotiation table can turn into an agitated environment when too many people are involved. When there are too many partners, every person will have their own objective behind the sale, making it difficult to navigate forward.
How to fix it
To avoid such a situation, keep business ownership concentrated to one or a few partners.
You can incentivize other partners with dividends, earn-outs, phantom equity plans, etc.
Regardless of how you compensate other stakeholders, try to keep more than half (i.e., not less than 50.1%) of ownership with yourself to sustain controlling share.
If the ownership structure is already in place, having a point person in charge of the selling process who ultimately has the final say can alleviate some stress. Even with that, focus on being over-communicative during the entire process.
5. Located in a High-Risk Environment
A high-risk environment can be related to the risky industry, financial risk, ease of doing business, or a riskier location in general.
Buyers might not be interested in buying your business if you’re operating in a high-risk industry or business location with strict financial implications and regulations.
For instance, California is a high-risk environment because it suffers from strict tax regulations and wildfires.
Few customers in the business’s area of operation can also characterize a high-risk environment. It means that only a few customers generate a major portion of your revenue. It can be a risk for a prospective buyer to buy such a business.
In general, buyers are not usually interested in businesses where a single buyer represents more than 15% of revenue generation.
What can you do about it?
How to fix it
You can mitigate the financial risk by improving your business strategy and working on your business portfolio. Work on your marketing to pull a larger stream of customers with recurring income.
And suppose the risk is associated with a high-risk business location, you can just set a realistic price that takes that disadvantage into consideration.
6. Outstanding Disputes
A business with outstanding disputes and claims will not appear to be an attractive purchase for any buyer. When a company has unresolved administrative disputes or court litigation, it will be very hard to sell your business at the price you want.
Even if you take responsibility for all litigations and resolving disputes, buyers will be hesitant to buy such a business.
How to fix it
If you don’t want to hurt your business value in the long term, resolve all the legal and financial disputes with third parties, management, and partners first. When everything is settled, then put your business on the market.
7. Unsupportive Advisors
One reason behind not being able to sell your business is your financial or legal advisors.
That’s a bit of a head-scratcher, isn’t it?
Most stakeholders involved in the sale of your business probably have their vested interest as a top priority.
The financial consultants and legal advisors in a business selling transaction are automatically out of a job when the sale is closed. When you’re about to seal a deal, your advisors may get concerned about their future income.
Therefore, you might not get a green signal from your advisor even if the prospective deal is profitable for your business. They might just say “no” to keep the process going so they can keep earning from it.
How to fix it
Getting a professional broker or business selling consultants can help you mitigate the risk of not closing the best deal because of your advisors.
Professional brokers who earn a commission on the final price of selling your business can bring in excellent prospects since their vested interest is in line with yours — getting a great price as quickly as possible.
Bring in transactional lawyers and accountants contracted for this deal only to help you in due diligence and financial cleanup.
In a nutshell…
Selling your business without a well-laid-out exit strategy can often lead to disappointing outcomes. But that doesn’t have to be the case for you.
With a strong exit strategy that takes into consideration your preparedness, proper valuation, advisors, and business processes, you can close your deal the next time you try.
Have you tried selling your business and didn’t succeed? Tell us why you think it didn’t work out in the comments and get an expert reply that gives you actionable tips to succeed next time.
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.