Research shows that 80-90% of owner's wealth is in their business and 8 of 10 small-medium businesses put up for sale don’t sell. And for the businesses that do sell, 75% of owners have regrets within 12 months of the sale. This means that only 1 in 20 business owners have a no-regret exit. This begs the question, why don’t they sell??? Here are the 12 most common reasons why so many small to medium-sized companies put up for sale do not end up being sold on terms you’ll like:
Lack of Preparation: Inadequate preparation for the sale process can deter potential buyers. A lack of organized financial records, proper documentation, or a clear succession plan will make the company much less attractive to buyers. It is the paradigm of failing to plan is planning to fail.
Unrealistic Valuation: Owners often have unrealistic expectations about the value of their business. Overpricing a business will discourage potential buyers who don't see the value in the asking price.
Financial Performance: Companies that are not financially healthy or have declining revenues will likely struggle to find buyers. Prospective buyers are typically looking for businesses with strong growth potential and stable financials.
Industry and Market Trends: Economic and industry-specific factors can impact the sale of businesses. If the industry is facing challenges or if there is a shift in market trends, potential buyers might be hesitant to invest.
Owner Involvement: If the business is heavily reliant on the owner's personal involvement and expertise, buyers might be concerned about its sustainability after the owner's exit.
Market Competition: In a market with many similar businesses for sale, buyers have more options to choose from. This can make it harder for any single business to stand out and attract potential buyers.
Due Diligence Concerns: Buyers conduct thorough due diligence to assess the risks and potential of a business. If issues arise during this process (such as legal liabilities, pending lawsuits, or undisclosed financial problems), it can scare away buyers.
Financing Challenges: Buyers often require financing to acquire a business. If the company's financials are not strong enough or if lending conditions are tight, buyers might struggle to secure the necessary funds.
Cultural Fit: For privately owned businesses, the owner's values, culture, and management style play a significant role. If potential buyers don't align with these factors, they might choose not to proceed with the purchase.
Negotiation and Terms: Disagreements over terms, such as purchase price, payment structure, and other conditions, can lead to failed sales negotiations.
External Economic Factors: Economic downturns, uncertainty in the market, or geopolitical events can make buyers more cautious about making business acquisitions.
Legal and Regulatory Issues: Legal and regulatory hurdles can arise during the sale process, causing delays or deal cancellations.
It's worth noting that the reasons for unsuccessful sales can vary widely depending on the specific circumstances of each company and the market it operates in. Successful business sales typically require careful planning, realistic expectations, transparency, and a willingness to address concerns and negotiate effectively with potential buyers. It is also important for business owners to work with professional advisors such as business brokers, lawyers, exit planners, and accountants at least 3 years in advance (why is another article, or reach out to ask me) to navigate the complexities of selling their company and ensure they achieve their no-regret exit.