- June 27, 2012
- Posted by: Business Brokers & Consultants
- Category: Selling a Business
A recent survey asked leading business brokers and intermediaries: What is the seller’s biggest obstacle to selling the business? In other words, why do business owners who are considering selling fail to follow through?
Seller’s Biggest Obstacle to Selling
The answers to this question were revealing, fascinating and important for prospective sellers to understand and consider prior to placing their business on the market.
The biggest reason was one that most people would guess—price. Here are a few explanations that sellers offered concerning price:
• Price—net amount after tax proceeds
• Never enough dollar value in the deal, after taxes, lawyers, accountants, brokers
• Price justification
• Price versus offer
• They don’t want to accept the market price of the business
• Price does not meet owner’s retirement needs
• Understanding that valuation is based on historical cash flow rather than “potential” cash flow
• Perception of value of their business in the marketplace based on reliance of an ill-informed source
Price was the area most mentioned (by far) as the reason sellers don’t sell or, not to mince words, why businesses don’t sell. A professional business broker is aware of local market conditions, has comparable sales data available and is knowledgeable in pricing businesses. Keep in mind that the ultimate decision-maker in determining a selling price is the marketplace. If you are not willing to accept what the market is willing to pay, then you should reconsider your reasons for selling—and read on.
The Next Biggest Obstacle
Two obstacles other than price were mentioned more frequently than any others. One of these had to do with books and records—or the lack of; and the other was a fairly new obstacle—seller’s remorse. You read that right: not buyer’s remorse, but seller’s. Here are some examples:
• Money/letting go
• Giving up business
• Price and emotional ties
• What are they going to do after selling?
• No more income stream
• Being ready to really let the baby go
• Motivation to actually sell when the offer comes
• Can’t afford to retire
• Pricing, indecisiveness (family/friends advise)
The point here is that sellers really shouldn’t put their business on the market unless they are totally convinced that they want to sell. Check with your business advisors, family members, and most important of all, ask yourself if this is really what you want to do.
Although inadequate books and records, etc., probably cause more difficulty than seller’s remorse, this subject is far less emotional than whether you really want to sell your business. Although it deals with straightforward numbers rather than emotions, it still takes its toll. Too many sellers wait until they have made the decision to sell and are ready to put their business on the market before they realize that their books and records don’t measure up to a buyer’s expectations. Today’s buyer wants to see everything in black and white; they are not willing to accept a seller’s version of sales and profits. If you are even considering selling your business, now is the time to go to your financial advisor, accountant, or CPA and have your financial records put in order in such a way that the information can be verified and a buyer or his or her financial advisor can easily access them. Contact your business brokerage professional, who can advise you about what buyers are really looking for when examining a seller’s business financial records.
Needless to add, but worth adding anyway: proper record-keeping should be done on an ongoing basis rather than on the eve of the decision to sell.