If you have tried to sell your business on your own or it was listed with a broker for over a year and the contract lapsed and you have given up in frustration, let us talk about what might be the problem. We will break this down into two posts:
1. Poorly presented to the world: There is an old saying that a website is akin to a billboard in the middle of the desert without proper marketing. How was your business confidentially marketed? Was enough monies budgeted to get your business out to the world and was it marketed to the correct potential buyers? If you are a niche business (like a medical practice or manufacture a unique product) there are certain media venues and industry sources where you do and don’t place your business.
2. Inferior books and records: The number one reason a business does not sell. Please see our detailed post on this subject, What Prospective Buyers Look For.
3. Critical deal breakers: If your are set in stone about a certain point (short training period, all cash, obsolete equipment or inventory included, certain staff or family must be retained, etc.) and the market is giving you negative feedback, take a hard look about whether your desire in a certain area is the problem. Time is not your friend and roadblocks are a serious deterrent to a successful exit.
4. Curb appeal: When we are feeling out a potential client, one question I always asked is “if we decide to work together and I see something in your business that would give a buyer or lender pause, do you want me to be politically correct or brutally honest?” Everyone always answers brutally honest (whether they mean it or not). Broken signs, weeds, obsolete inventory or a messy shop floor do not set the right tone. People take about 6 seconds to generate a first impression. Don’t blow it.
5. It will not support financing: You are asking two million dollars for your business, but the free cash flow is $150,000/year. Debt coverage on 80% of the offered price for 10 years is approximately $230,000/year. Add another $100,000 salary for the new owner and you business would be a negative $180,000/year loser. Your asking price has to “back tested” against reality. This is another reason a third party appraisal with pre-financing in place is so critical.
In my next post, I will describe seven other reasons businesses don’t sell or sell at a deeply discounted price.
6. Bad Location or Lease: A great franchise in lousy location makes for a failing business. Also, too high a rent as a percentage of sales can make it tough to survive. Thirdly, if your landlord won’t play ball with the buyer or the buyer’s bank, it can queer a deal.
7. Poor Growth Outlook: The old adage goes “Buyers pay based on your history in anticipation of the future”. If the future prospective sales don’t look that rosy, why would a buyer take the plunge?
8. Out of Favor Industry: Florida construction companies for sale in 2008 are taking longer to draw interest, even the good ones. They are getting tarred with the same brush as failing companies. The key is to stand out versus your peers.
9. “One Man Band” Syndrome: Entering parties are looking to buy a company with good systems and procedures in place. If they see an Exiting owner who is frazzled, over-worked and whose company’s existence depends on him; that is not very appealing. Next…
10. Unrealistic Price: See Point #5 from the prior post, It will not Support Financing. You think your business is worth $5 million and an unsophisticated buyer will pay $5 million (it rarely happens) but the bank, backed by an appraisal will only loan $2 million.
11. Sales/Cash Flow trending down: This is part and parcel of point #7. Unless your business is distressed and a turnaround professional is called in, an Entering Party wants to see plenty of business in the pipe line and margins improving.
12. Not willing to give out enough data: I see this from time to time. Exiting Clients are (rightfully) worried about sharing too much data. But sometimes it goes beyond that. What are they hiding? Has trust become an issues? Screening Entering Parties up front to make sure they meeting the buying criteria will prevent this. A well-written Non Disclosure is a must.
Chris is the CEO and founders of Bankers Advocate. Bankers Advocate is a Boutique Sales, Mergers and Acquisitions firm serving companies with enterprise values up to $30 million dollars.
We design successful Exit Strategies for Entrepreneurs. The Exit could be via the financial or strategic buyer we research and target. Or it could be through a controlled liquidity event/transfer to your key employees or next generation that we design, manage and execute.
We also have a very active Targeted Business Search Program where our Individual, Corporate and Private Equity Clients entrust us to find them the right companies to purchase in the “Hidden Market”.