Most business sellers, starting a sale with a search for a buyer, ask themselves after a couple of months: "Why can't I sell my ready-made business?”. It seems that the buyers were interested and the calls are coming, but there are no deals.
What's the matter? 99% of cases are rooted in three main reasons.
Reason #1 - "Overpriced And/Or Unreasonable Price"
The first step in selling a business is to correctly and fairly assess its value.
What criteria affect the value of a business:
- Monthly profit. On average, the cost of a business varies from 6 to 24 months of payback. Read about DCF method for valuing an ongoing, profitable business.
- The value of tangible and intangible assets. Some business is sold for more than its payback period, if it has a lot of material remnants - the cost of equipment and inventory, real estate, other property on which its activities are tied. However, if evaluating its tangible assets, the price rises to many years of payback, it may be easier to sell tangible assets and not a ready-made business. For example, a competitor.
- Business automation. The less a potential buyer will spend time and need competencies to manage your business, the more expensive it can be sold.
- Demand and market dynamics expectations. Business in temporary (trend) markets is cheaper than business in the market of stable demand.
- Risks. The lower the risks in your business, the more expensive it is to actually sell it.
Both the business owner and the broker can make this mistake if they under-estimate the scenario, overlook critical details, or are simply too sluggish to prepare a presentation of the object.
For this reason, several problems arise at once:
- loss of advertising budget due to low customer response;
- loss of time for unpromising negotiations;
- loss of money when agreeing to an unreasonably low price of the buyer.
How it happens?
Due to the unattractiveness of the offer due to the overpriced or unreasonable price for the Buyer, more than half of the buyers do not even spend their time on a phone call.
Further, those who nevertheless come to negotiations, seeing an overpriced price or not understanding its rationale, simply refuse to buy at all because "If it is not clear where this price came from, then the whole business is not clear".
Related Article: How to Set a Realistic Asking Price
Those who are still willing to take the risk offer the same price on the contrary - i.e. unreasonably underestimated.
How to avoid it?
- Calculate in advance an adequate price for the business.
- Prepare an offer with a detailed justification for this price.
- Start looking for buyers.
If you want to go deeper into business assessment, you need to use some common business valuation methods.
Reason #2 - "Abbreviated Advertising Campaign"
Such a mistake is often made either by the owner of the business due to excessive economy, or when the sale of a readymade business is not carried out by a broker, but by a realtor. A large-scale advertising campaign is not possible in a real estate scheme due to the lack of prepayment from the business owner. And it is simply unprofitable to carry out an advertising campaign of several dozen objects at once.
For this reason, several problems arise at once:
- wasting time looking for a buyer;
- loss of a potential buyer.
How it happens?
The placement takes place mainly on free resources, without special placements. As a result, ads roll down to 2-3 pages within a couple of hours.
Most of these new offers are monitored by market professionals - business brokers and realtors.
The buyer, for the most part, prefers not to explore the mass of free offers on one especially free resource, but to look at a dozen sites with offers of a readymade business.
Here, it turns out that either he gets lucky and the buyer accidentally notices or simply the right buyer will pass by because he does not want to waste his time on selection and detailed search.
How to avoid it?
Develop and conduct an advertising campaign that takes into account the specifics of the business being sold and engages the largest possible audience of buyers who might be interested in this offer.
Your offer should itself catch the eye of the buyer, if not on the first resource, then on the second.
Reason #3 - "Opaque Business Processes"
Before even considering selling a company, get your financial statements in order. Take away any skeletons in accounts or other sloppy accounting practices.
Good accounting and a good internal accounting system are important. Potential buyers will dig through the financial records to make sure there are no major financial problems. They'll look at your company's balance sheet, income statement, cash flow statement. Your full general ledger of accounts will be the subject of a more thorough assessment, including all transactions for a specific period. Potential buyers will want to make sure that you have a process in place to collect your accounts receivable on time, and that you pay your accounts payable on time, and have a good reputation with your suppliers.
The potential buyer wants to be sure that the financial statements you submit truly reflect the business’s financial health and that you are using the best accounting practices. Thus, having a modern transparent internal accounting system is mandatory.
How to Sell a Business and Reduce Risks: Tips + Checklist
It is feasible to sell a ready-made and profitable firm, but some market details must be considered. Working with skilled market representatives, private brokers, or business brokers, subject to thorough selection, will be more efficient and safer for both parties!
- To make a transaction safer, follow a few easy principles and avoid the blunders that 90% of sellers and buyers who have never done business before make.
- Don't be afraid to work with contractors. Whether it's a business broker or targeting experts and lawyers. This saves you time to sell your business, your budget and reduces your risks.
- Also, build an advertising budget. If you are not selling a business through your phone book or word of mouth, you will need expenses. Showing your offer on the internet costs money. Do it wisely, but the more people see your offer, the greater the probability and speed of the sale.
- And prepare for sales and appointments in advance! Buyers come to good deals, but at meetings, you can miss them. Preparation will help the deal go through.
Your safe transaction checklist:
- Study the procedure for selling and delve into the main nuances of the transaction.
- Competently carry out the procedure for re-registration of the transaction.
- Maintain official records of business profits and produce paperwork showing business profits from the start.
- You can work with private brokers and companies if you like, but only after carefully screening prospects!
- Talk to folks in your area who have done comparable deals before and ask them about the challenges they had.
- Do not be scared to ask the buyer any questions.
- Enlist the help of an expert ahead of time and, if feasible, conduct a negotiation with an expert business broker, learning all the steps involved in closing a contract from him.
Related: Pre-Sale Checklist (download)
About the author: Hannah Butler is a сontent writer at WriteMyPapers4Me company. She likes writing on education and business topics. In her free time she enjoys being in the mountains, climbing, and bike riding.
