Four Reasons Business Sales Don’t Close
Did you know that less than 20% of businesses for sale actually close?
You might be surprised by that statistic, because that means over 80% of businesses for sale never actually successfully sell.
What is it that causes this? What breaks down in the sales process that leads to such a bleak success rate? We have asked that question ourselves and have discovered four key answers:
1. The Company Isn’t Ready
The first key reason that business sales fall through is due to the business. B2B CFO, the nation’s largest business transition firm, stated in an article that “the main reason why most business owners are not successful in transferring ownership is because their companies are not ready to undergo the sale process.” Companies may not be ready in processes, revenue, or employees. Remember, to successfully sell your business, it must be appealing enough for someone to buy. So if you are thinking about selling your business, it is imperative to think about the strategic and operational improvements that can be made. This will position your company to attract a buyer and to be part of the 20% that closes the sale successfully.
2. The Owner Isn’t Ready
The second key reason business sales fall through is due to the owner. Most owners are emotionally or physically unprepared for the process of selling their business. The sale process can be complicated and grueling, with due diligence, process documentation, succession planning, negotiations, bidding wars, etc. If you are considering selling your business, think about what you can do today to prepare yourself for the day when you no longer walk into your business. Preparing emotionally for the sale of the business will help the business sale actually close, as a potential buyer will see that the business can function without it’s owner.
Additionally, understanding the sales process will help close the sale. Many business owners jump into selling their business not understanding the entire process. Understanding more about how the sales process works rather than just leaving it up to a broker will help close the deal.
3. Failure to Understand the Value of Your Business
A third reason a business doesn’t sell is because the owner doesn’t understand the true value of the business. Like a parent with their child, owners struggle objectively assessing their business’ value. Many owners overestimate the value of their business and fail to understand the elements that can impact the value. If you’re thinking about selling your business, but don’t know what it’s worth, it is imperative that you get your business valued.
4. The Wrong Representation
The final reason business sales fall through is due to your representation. If the firm or broker that is helping you sell your business doesn’t understand the industry or your business, that can have a negative impact on the sale of your business. Even if they do understand your industry, they may not understand what you as the owner need from the sale. Though it’s tempting, don’t go with the first business broker who approaches you. Take the time to interview multiple brokers and get a feel for those that are vying for your business.
So, if you are thinking about selling your business, or are in the midst of the sale process, you should consider these pitfalls to a successful close. Ensuring your company and you personally are ready will propel your business into being one of the elite 20% of business sales that go through. If you feel stuck or overwhelmed, take a deep breath. Begin to think about the big picture and if your company is ready to be transferred to a different owner. Consider the value you’ve built into your business – is it transferrable to another owner? Finally, if you are ready to sell your business, think about your representation. Do they understand your business, and can they effectively speak for your business? And remember, selling your business may be the best thing for you and your employees. Don’t be afraid to move forward.