Don’t let these common business sale barriers block your business from selling
Most businesses don’t sell. We’re talking 75% of small businesses (defined as revenue under 5 million/year).
Why don’t small businesses sell?
Small businesses do not sell due to a lack of planning to resolve business sale barriers
Not planning for the sale of a small business can be readily identified by the small business owner’s:
- Working IN rather than ON the business
For most business owners, their small business makes up a sizable portion of their personal net worth. For many, the business is their largest asset. Yet, this is only true if the business can be sold.
How can you be part of the 25% of small business owners that do resolve business sale barriers to successfully sell their business?
When business owners plan for their small business sale in advance of their desired sale date and follow a plan to identify and address the obstacles to a sale, they radically increase their chances of selling their business.
To succeed, business owners must take a step back and take a sober look at their business from a wide angle view. They need to be honest with themselves as to whether their business would be appealing to buyers. Oftentimes, business owners have a distorted view of their business’ value and desirability. This can be toxic to the sale of a business. Distorted perceptions of value and desirability lead business owners no where. The market just won’t pay you what you want when you want it. Business owners with unrealistic expectations torpedo their business sale prospects and undermine their business sales deals.
With the advantages of time, intention and professional feedback, small business owners can identify their barriers to a successful sale. Some of these barriers will be readily apparent and others are hidden and need to be brought to light for planning and change.
Business owners who are burned out and/or feeling overwhelmed by the prospect of selling their business, more than most really benefit from the support and time to help them optimize their 1. chances of selling and 2. for their realistic desired price. More often than not, small business owners shoulder the burden, anxiety and doubts about their business sale. Working with a supportive team helps owners develop realistic assessments, identify barriers and develop a plan to overcome their barriers.
Identify and eliminate business sale barriers
Once a business owner realizes the importance of preparing for their business exit, they then must identify their business sale barriers for a successful business sale. Many companies are not saleable due to hidden barriers. Owners may have unknowingly allowed business barriers to develop and worsen. Getting help identifying their business ale barriers is a pivotal step towards securing a successful sale.
The following are common business sale barriers. Can you identify any that relate to your business?
Business Sale Barrier 1: Not knowing your business value.
It’s crucial for small business owners to know their numbers and business valuation. They should know their gross sales, net proceeds, margins, cost of good sold and their business value. These are the numbers that your prospective buyers will zero in on when they look at your business listing online. They will study these numbers [hard] when they are deciding whether to make an offer. These are key numbers and the earlier you know/understand these numbers, the more that you can make productive decisions to improve performance.
Business value will fluctuate which is why the past 3-5 years of financial records are considered for valuation purposes. Informing yourself of your business value and what influences the value will help you become aware of the blocks that are impairing improving your business performance and your business value numbers.
Business Sale Barrier 2: Not knowing how much you will net from the sale of your business
Many a business owner has gasped at their tax exposure from their business sale. It’s imperative that before you sell your business, you get with your financial professionals, such as accountant and financial planner, to understand:
- The tax implications of your business sale
- Can the tax implications be improved
- How long will that take to improve your tax elements to net a greater share upon the sale of your business
Business Sale Barrier 3: Not having a clear understanding of how long it takes to sell a business in light of your timing needs (particularly retirement)
Business sales are notoriously slow. In good times, business sales take 6-9 months. In bad times, much longer. For most business sales, anticipate at least 12-18 months from the moment you meet the broker to the moment you finished training your business buyer to take over the helm of your business.
Business Sale Barrier 4: Failing to properly resolve cash flow issues
This is a major red flag in a business sale. Don’t let yourself get stuck in a situation where your gross sales and net income decline. As brokers, we’ve heard one too many times from business owners about all the things that buyers can do to improve sales but these suggestions ring as hollow advice. Buyers will be wondering why the seller had not performed these improvements themselves. It’s far better for the business owner to make necessary improvements to their cashflow far before they list their business for sale to improve their valuation, net proceeds and chances for securing a successful sale.
Business Sale Barrier 5: Inadequate sales and marketing
Like Barrier #4, inadequate sales & marketing negatively affects the bottomline. Failing to optimize digital marketing, launch sales campaigns, hire sales persons, all reduce gross and net revenue which, as we previously discussed, are the key performance indicators for buyers’ determination about pursuing a business opportunity.
Business Sale Barrier 6: Poor or sloppy record keeping.
Back to the 75% of small business don’t sell guidance, one of the turn-offs for buyers is that the seller is a sloppy record-keeper. Their books and records are chaotic, disorganized and/or incomplete. This reflects badly on the business and you as a seller.
This sloppy record-keeping prevents a buyer from truly gauging whether your business is worthwhile since they don’t have all the facts at hand to make that determination.
Sloppy record-keeping may also diminish the confidence to want to buy your business. We strongly encourage our sellers to thoroughly prepare and organize all their relevant business records to meet the scrutiny of buyer’s analysis and due diligence.
Business Sale Barrier 7: Your business is unable to run without you.
We’re going to let you in on a little secret: Businesses that can operate without the owner sell more frequently and for more money. Many buyers want to be able to walk into a turn-key business that is fully managed. For those businesses that have operated on an absentee or semi-absentee basis for several years is highly desirable for many a business buyer. Additionally, you expand your buyer pool substantially by offering both an investment and/or operator business opportunity.
Business Sale Barrier 8: Lease Drama
For most business sales, the business is financed. Lending requirements for Small Business Administration, SBA, loans mandate that the lease duration should match or exceed the loan repayment duration which is 7 to 10 years. Assure that your lease term, including options to renew, are able to meet those terms with the landlord.
Your lease should be unproblematic for the buyer. Make sure the lease is transferable and work out any kinks that may prevent transferability. Make sure all arrears are satisfied.
Additionally, if your lease is set to expire, it would help facilitate your sale if you could preliminarily develop the new lease terms with the landlord for the future buyer.
Business Sale Barrier 9: 3rd Party Conflicts
Sellers who are regulated, licensed, franchisees or have exclusive vendor relations, need to determine what exactly needs to happen for a successful transfer of their licenses or agreements to properly transfer their business.
It will help you to do some preliminary investigation as to what necessary for your business transfer and how long the process normally takes.
Business Sale Barrier 10: Excess business deductions
Most business sellers have taken liberal deductions on their tax returns. Many have also run personal personal expenses through their business or skimmed. These actions hurt business valuations. By showing your business cashflow as less than what is actual, you reduce the desirability of your business, the value of your business and the salability of your business.
Get with your tax professional well before you plan to sell. You may need to make modifications on your deductions going forward. You want the financial portrait of your business to reflect a thriving business that is consistent year-over-year. This may reduce your income for a few years prior to sale but then you will make it up on the sale of your business.
Breaking through your business sale barriers will pay dividends when trying to sell your business.
A business sale may be the largest financial transaction a business owner will experience. For most owners, selling a business is a one-time event that can be emotional, time-consuming and complicated.
Given the owner’s need for financial security, business owners help themselves enormously when they empower themselves with the benefit of adequate time, preparation, planning and support to eliminate business sale barriers.By doing so, they can create substantial wealth. Failing to do so, may result in no sale or selling for far less than what could have been.
Don’t let business sale barriers prevent you from securing the successful and lucrative business sale that you deserve. You have one shot at selling your business to afford your freedom. With the proper care & feeding of the business sale process, you’ll be glad that you put in the time and attention to take care of your needs and future.