Why Businesses Don’t Sell and Why Some Never Sell!
Sometimes, business owners are their own worst enemies when trying to sell a business.
“Statistics show that less than twenty percent of businesses sell when they are put on the market.”
In other words, 80% of businesses never sell when marketed!
A survey of Business Brokers and Merger & Acquisition (M&A) Advisors revealed the top reasons why businesses fail to sell successfully.
The most common issue identified was unrealistic seller valuation expectations. Sixty-nine percent of M&A advisors and business brokers pointed to this as the primary obstacle in selling a business.
Key problems include:
- The business valuation is excessively high, sometimes by as much as 100%.
- Several family members hold top management positions.
- The owner is integral to the business; it cannot run effectively without their expertise.
- One or two customers account for over 25% of the total business.
- The industry is declining or threatened by globalization.
- The owner is aging and has slowed down, resulting in reduced revenues.
- The owner did not engage in exit or succession planning, which should ideally start 2-5 years before selling.
- Many financial benefits taken by the owner as “perks” do not factor into EBITDA calculations.
- The seller did not educate themselves on the selling process, especially the potential challenges during due diligence.
- The owner did not use professional services from a trusted M&A advisor or business broker.
Without proper preparation and a proven M&A process, there will be a significant gap between the seller’s expected value and what a reasonable buyer considers a fair market price. Selling a business requires years of preparation and a well-established process.
Additionally, the process is time-consuming. Balancing the need to keep the business running smoothly while navigating through numerous bargain hunters can be overwhelming. Without a proven approach, a formal business valuation, and thorough preparation, these bargain hunters will erode the seller’s asking price.
For B2B and large businesses, the buyer is typically a corporation or private equity group, not an individual. If the potential buyer’s revenue is up to $100 million, the contact in M&A is usually the president. For larger companies, it’s typically the head of strategy, business development, or mergers and acquisitions.
Reaching these corporate buyers is a complex and labor-intensive process. In such cases, it’s wise to engage a specialized M&A advisory firm.
In summary, proper preparation is crucial for a successful business sale. The process, which takes approximately 2-5 years, is not overly costly or time-consuming, but the results can be exceptional, leading to a significantly higher valuation, better terms, and a quicker sale.