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.