7 Reasons Why Your Business Will Never Sell
According to the International Business Brokers Association survey of business brokers an estimated 70% of all businesses will never hit the market for sale. And of those that are listed for sale, only 50% will actually be sold. Here are the seven reasons why businesses are unsellable:
1. Customer Concentration.
If any one customer accounts for more than 30% of annual income, then it’s likely you will have troubles selling your business. The risk of losing that much income from one customer is just too high for most buyers. Furthermore, the underwriters and the internal policy makers of commercial banks will likely not approve a loan under these circumstances. A diverse base of loyal customers creates an ideal situation for selling a business.
2. Poor Bookkeeping.
Starting with the business valuation through the due diligence and then to the closing having accurate books and records are absolutely essential. The basic information required to successfully sell a business includes tax returns, profit and loss statements, and a list of assets being sold. In addition, you may be asked to provide payroll reports, depreciation schedules, employee manuals, list of contracts, documentation of licensing, and much more.
3. Deferred Maintenance.
It is not uncommon for business owners to put off replacing aging equipment, machinery, or vehicles in a well-established business. Pushing these necessary capital expenditures into the future is a great way to preserve cash. But it may not be a great strategy for growing a company or maximizing the value of the business. Eventually, the business owner will have to invest money in replacing or upgrading these assets. If it is left to the buyer, then the business value will likely be discounted.
4. Dependence on the Owner.
The most sellable businesses are ones that are not dependent on the owner. Business owners should find ways to work themselves out of a job. This may require changing business processes, implementing new technology, or hiring additional employees to do the work of the owner. Relationships with customers and vendors should extend beyond the owner to include other employees.
5. Declining Sales and Profits.
There are very few buyers that are looking to acquire a distressed business. People buying businesses want to see a return on their investment. They want to know the business is scalable and that there is a positive upside. It is not uncommon for a business owner to experience burn out and lose their motivation to grow the business. The business may also subject to market forces they cannot control. Timing the sale of the business is the key.
6. Market Forces.
What are market forces? Anything that can impact the supply or demand for a product or service. These include social, economic, technological, political, demographic, or competitive forces that change and shape the way small business compete in the marketplace. For example, changes in the interest rate will impact potential buyers and their ability to borrow money to purchase businesses. Or let’s say a new technology is introduced that eliminates the need for a particular service.
7. License Restrictions.
There are numerous industries, trades, and jobs that require specific licensing in order to provide a product or service. This could be anyone from a plumber to a doctor. Because of licensing restrictions, the number of potential buyers for your business may be significantly reduced to only those people who have the proper licensing. There creative ways to “get around” the licensing issues.
For more information about this topic and many others, contact Bristol Group to speak with one of our advisors.
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