November 9, 2009

Three reasons business owners can't sell their business

photo by cometstarmoon

Ask any business broker in town, and they will tell you that 85% of listed businesses never sell. There are three reasons why:

Problem One:
You have not developed a business that runs independently of YOU.

Too many businesses are so dependent on their founders that they are not worth anything to a potential buyer. The processes exist only in the founder's head, and are not documented. Key buyers have relationships with and loyalty to the founder (not the business itself), and would rather shift their business to a competitor they know than to a new owner once the business is sold. Also, there may be no leadership team to continue to grow the business after the founder leaves. Why would anybody buy a business that becomes vapor after you leave?

Solution: You have to put systems and processes in place so that the business runs without you.

Problem Two:
You have unrealistic expectations about the price you can get for your business.

Your small business will not command the same multiple as a publicly traded company (e.g., 10-20 times earnings), not even close. Most small businesses sell for 1 to 2 times owner's benefit, which is basically your income plus other benefits (i.e., car allowance, insurance, memberships), or for the value of assets in the business (i.e., inventory, buildings). Unfortunately, many business owners try to place a value on their years of blood, sweat, and tears that they have put into the business...and most buyers could care less. Others owners try to add a premium for the blue sky potential of the business; however, why should a buyer pay for potential that has not been realized?

Solution: To sell a business, you have to have realistic expectations about what your business is really worth.

Problem Three:
You have sloppy or no marketing materials to persuade a buyer to take interest.

Many business owners (and, unfortunately, brokers) present incomplete, unprofessional, and sometimes downright fraudulent sales packages. The numbers are not audited, or are inaccurate. The business valuation is based on future growth that may or may not happen (and if the growth potential is so assured, why hasn't the owner already achieved these ambitious goals?). There is no overview of the marketplace and competitive landscape, or explanation about what makes this business unique. Without a professional and legitimate sales package, prospective buyers will be scared away.

Solution: Create a professional, accurate package of information to inform qualified buyers about why your business is valuable and well worth the price you are asking.

Categories: Management

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