The #1 Reason Why Businesses Don’t Sell

Let’s take a minute to look at why certain businesses don't sell. First of all, selling a business is hard; there's just no way around that. Even in the best markets, it's estimated that up to eighty percent of businesses don't ultimately sell. Why is that? Well, downward financial trends, financing issues, or the owner simply changing their mind are common issues, but the unrealistic value expectations of the owner is probably the most common reason.

A lot of business owners are focused on what they have invested in the business or what they need to get out of the business. While these are important considerations in deciding whether or not to sell the business, they ultimately have nothing to do with the market value of the business. A buyer is not going to care about either of those two things, so the seller must have realistic value expectations.

A business is worth what someone is willing to pay for it. Market value is typically established by first determining your adjusted EBITDA or Seller’s Discretionary Earnings. Then you look at businesses that have sold as well as those currently on the market that are similar in size and type to the business you are listing. You want to see what earning multiples they sold for or are listed for. For more information on determining market value, see the other articles on my site.

Once value is established, it’s important to remember that it’s not just about the numbers. There are also other things that can happen in the presentation of due diligence. Psychology plays a big part in the buyer’s decision. They want to be able to see themselves not only making money with your business, but also enjoying doing it. So it’s important to present the business in a way that the buyer is excited about stepping into your shoes. The way you tell the story, the organization of the due diligence materials, and the way you represent the business premises can all affect a buyer’s decision.

Sometimes the problem can be personality conflicts between the buyer and seller. This is especially likely when you're negotiating directly with a buyer. That negotiation puts you in an adversarial position with the buyer, but at the same time you need the buyer to like you and want to work with you. Because even if they are familiar with your industry, they are still going to need you to help successfully transition them into your specific business.

Throughout the long business selling process, one important piece of advice I have for business owners is don't forget that your primary job is still running that business. If trying to sell your business is taking so much of your time that you lose focus on the business, revenues may suffer and that's really going to affect your ability to sell that business and the price you are likely to get for it. I have seen many deals fall apart for this very reason. Be sure to take a look at some of the other articles on my site including the one titled Steps in Selling a Business.

Jeff Brown is a Business Broker with Business Acquisitions, Ltd. in Denver, CO. He is also a former M&A Attorney and Entrepreneur who has owned, operated and sold five successful businesses of his own. Jeff can be reached at 720-989-4121 or Jbrown@Baltd.com.