Whether you’re a business owner with a company generating $1 million or $25 million in annual sales, if you’re like most entrepreneurs, you anticipate selling your business one day and reaping the rewards of your hard work. Imagine when the time comes to sell, you hire a business broker or a M&A firm who paints a rosy picture of a smooth sale. However, nine agonizing months later, your business remains unsold, with no offers on the horizon and no marketing materials to show for it. It’s nothing short of a disappointment, and the unfortunate truth is that this is more common than many business owners realize. Statistics indicate that only around 20% of businesses listed for sale ever actually change hands.
However you can beat those odds by understanding the mistakes that can sink a sale and learning the strategic moves that lead to success.
The Harsh Reality of Unsuccessful Business Sales
Let’s start with the fundamental question: Why do so many businesses fail to sell?
Overpricing: One of the primary reasons for business sales falling through is overvaluation. This can stem from either business owners holding unrealistic expectations about their business’s value or advisory firms inaccurately assessing the company’s worth, sometimes listing it at a price that the seller dreams of but is unlikely to attain. While clients may perceive their business to be worth a certain amount, securing a deal becomes challenging when the valuation is unrealistic, especially if financing is necessary.
Unlike brokers who may base listing prices on owner perceptions, our team of experienced brokers takes a meticulous approach to ensure accurate valuation. We calculate values by examining past deals in the same industry and considering recent market trends. Additionally, we employ a method that ensures the business has enough cash flow to provide the next owner with a reasonable salary, deliver a satisfactory return on investment, cover annual capital expenses, and manage debt service with a reasonable debt coverage ratio for a financing institution. This comprehensive approach to valuing a business guarantees a listing price that maximizes success for both owners and buyers.
For Sale By Owner: Selling a business independently is a time-consuming and underestimated undertaking. Distraction from daily operations can lower revenue and raise concerns for potential buyers. Consider this: how often do we excel at something the first time? When I became a kicker on my school’s football team, it took years of practice and experience, before a coach would trust me with a game-deciding field goal… and rightfully so! Selling your most significant asset demands expertise, consistent effort, and “game-time” experience. You know your business, but selling your business is a different endeavor. To make sure you get the outcome you want, resist the desire to sell it yourself and entrust a broker or advisor with experience and expertise.
‘The Pitch’: In the world of business sales, a common reason for unsuccessful transactions is choosing a broker or M&A firm without careful consideration of location and market cap expertise. The selection of an M&A advisor significantly influences the outcome of the sale. An effective advisor must not only be geographically close (regionally focused) but also possess deal size-specific knowledge to navigate the complexities of your business. Although our brokerage team includes advisors with niche expertise, the majority concentrate on specific geographic regions and business sizes rather than a narrow industry segment. As a business owner, you will want to assess your representation to ensure they grasp the opportunities and possess the essential negotiation skills and experience crucial for structuring successful deals. The wrong choice of an advisor can be a key reason for businesses not selling.
Indecision and Lack of Planning: A crucial factor in businesses not selling is when owners waver on terms or lack a clear plan. Successful sales demand strategic planning long before listing. Setting realistic expectations, comprehending the M&A process, establishing terms and conditions in advance, and making decisive moves are vital for a successful sale.
Entrepreneurs should also consider how the right advisory firm can address existing issues before the sale, increasing the business’s value. Sometimes, even minor adjustments can have a substantial impact, especially for entrepreneurs eyeing retirement. We advocate starting the process 2-3 years before the desired selling date. Our brokerage team finds that collaborating closely with business owners, their accountants, and wealth managers during preparation ensures a well-executed succession plan and a successful exit.
Navigating the Sometimes Winding Path to a Successful Sale
It is rare for a business transaction to be a straight path from listing to close. There will be curves that can derail a deal. Professional M&A advisory services can make the difference between a business that languishes on the market and a business that garners the timely offer an owner envisioned.
The journey to a successful business sale is fraught with challenges, but with strategic planning and the guidance of experienced M&A Advisors, business owners can navigate these complexities and secure the exit they envision. By avoiding common pitfalls, you can ensure that your story is one of success and financial reward. After all, a well-executed business sale should be the culmination of your years of hard work, so it’s worth every effort to get it right.
