If you feel it is time to step away from a business you have invested time and money into there are a number of things to consider. What many business owners fail to think about when they entertain the idea of selling their business is what factors may make it harder for them to sell their company. Today we are going to look at 12 of these factors.
1. Your business is losing money
No business is going to be easy to sell if year after year you are showing no profits and only in the losses on your book keeping records. While it is normal for a new business to have losses for the first year, maybe two, while it is getting established and marketing itself, after that, there should be profits to show for the work you have put into it. If you cannot demonstrate to a potential buyer that your business can make them money, they are going to be hard pressed to invest their money into something that shoes no signs of returning that investment. A business owner who is not making money is desperate to get out from under that business but potential buyers will also be desperate to stay away.
2. Sales have been declining
If your sales have gone down significantly over the past several years, it will be very hard to generate much interest in buying your business. While you can shoe that your business model is strong and the basis and general idea for your business can be successful, potential buyers will be warry about what happened recently to cause to decline. Were you mismanaging funds? Did you lose customers due to poor service? Did you have a lot of turn over with your employees because of poor leadership and training? These questions are important for any potential buyer and are things they are going to want to know before even thinking about buying your business!
3. No longer part of a popular trend
Millions of start-up businesses begin because someone is trying to cash in on a hot trend. Examples of businesses that took hold because of major trends and popular fads over the last few decades include frozen yogurt, studio photography, video rental, pizza shops, pet food, photo editing, and nail care shops among many others. Popular trends change and they can change very quickly in a matter of years. So, when developing plans for a business make sure it is a trend that is still popular when you are trying to sell. If the hot locations in your town are things like coffee houses or gourmet sandwich shops, selling a froYo shop or a photo studio can be hard, even it you are still making a small profit.
4. Lawsuits and other disputes
A pending lawsuit can definitely put a damper on the sale of a business. The same also goes for any and all unresolved claims that haven't hit the courts yet. You will also find it hard to find a buyer it there are any administrative disputes or unsettled issues between you are partners in the business or financial backers. Even though you might offer to take full legal and financial responsibility for any negative consequences, most buyers are going to be very hesitant to invest in a business that they will be starting off with on rocky ground. In short, if you can’t reach settlements before you start to market your business, it is going to hurt your ability to quickly and easily sell your business.
5. Large amount of debt or multiple debts
Debts are unavoidable to a point to get started with a business but if you are unable to pay off those debs or are always having to take out loans it is not a good sign in the eyes of potential buyers. It tends to send the message that your business doesn’t produce enough cash to keep current on bills. It will also give them even more damaging impression that the cash flow is wildly unpredictable and varies greatly from one quarter to the next with no reliable income or savings built in. It will be difficult to convince a buyer to sign on the dotted line if you cannot repeatedly demonstrate that the business is capable of bringing in the profits and cash flow that is necessary for long-term success.
Related: How to Sell a Business with Debt
6. Deep-pocket competition
Buyers will likely be hard to come by if your market niche is dealing with a lot of competition from big named companies that have deep pockets, ample backing, and success in the are. For example, if you have a mom and pop pizza shop you may find it hard to get a buyer when your area is filled with name brand shops like Pizza Hut, Dominoes, and Little Caesars. Potential buyers may worry - which would be a justified worry - that your business is about to get lost in the crowd. They are going to feel apprehensive about investing in a shop that will require a lot of work and effort just to be seen and heard above the advertisement and reputation of the big-name competition.
7. Rapidly declining neighborhood
Some businesses are struggling to get by and are up for sale because the local area is in decline. People are moving away or not doing as much business in the area for one reason or another. While these kinds of factors are beyond your control as a business owner but it will affect how easily you will find someone to invest in your business. It can be done but will be harder to sell than if it was in a thriving area.
8. Not having a long-term lease
Businesses which have a strong connection to their area are known as location-sensitive. These businesses are likely to face problems finding a buyer if the prospective new owner cannot be given adequate assurance that they can get a long-term lease and won’t have to worry about losing their space every 6-12 months. Having security is important in business ventures and worrying about losing your lease and space can be a major turn off for potential buyers.
Related: How to Sell a Business With Lease
9. Business can be duplicated more cheaply
Some businesses are easy to start up and once the business starts to fall on hard times, it can be easier to start one up from scratch than to try and restore one that is failing. After all, no buyer will want to spend $25,000 or even just $15,000 for your business that is struggling when they could start their own in a similar niche on their own for $10,000 or less? It is a major turn off that is hard to overcome and convince a buyer of otherwise.
10. Financing availability if hard to secure
When the region or the country as a whole is in a recession it can be hard to get financial backing that is needed to buy and maintain a business. Without loans and financial backing, you will find it hard to locate someone who has the cash that is needed to buy your business so it may be better to wait for the economy to pick up again. It might be easier to sit on it for another year and hope for a pick up than to struggle finding a buyer.
11. Stock market and investments play a role
When traditional financing is not available easily, investors put their money where they can expect to get a good return on their investment with as little risk as possible. Some investors put their money into stocks or other similar investment opportunities while others may invest at least part of their available money into startup businesses. Depending on how well the market is doing is you may find it hard to secure a buyer willing to invest their money into your business rather than a more reliable investment option such as low-risk stocks.
12. Real estate equity also comes into play
The deterioration in home values and what that means for the local can lead potential buyers to resort to as wait and see approach. When entrepreneurs are enjoying good home equity, they are more likely to sue that equity to invest in purchasing a small business. As equity disappears, their confidence decreases and they are less likely to take a loan and invest in the purchase of a new business of their own.