When a business owner decides to sell their company, there are a number of things that need to be done in order to prepare for the sale. However, many business owners fail to properly prepare their businesses for a sale, which can lead to several problems, including the real likelihood of not being able to sell the business. Based on research, the main reasons why business owners fail to prepare their businesses for a sale are outlined below.
1. Lack of knowledge: Many business owners simply don't know what steps need to be taken to properly prepare a business for a sale. They may be unfamiliar with the process of selling a business, or they may not know what steps need to be taken to make their company more attractive to potential buyers. Without a clear understanding of the process, it can be difficult for business owners to know where to begin, which can make it difficult to properly prepare their business for a sale.
2. Don’t think about it until it is too late: Business owners are so focused on running their day-to-day operations that they don't take the time to think about what they would need to do to get their business ready for a sale. By the time they start thinking about it, it's often too late to make the necessary changes.
3. Lack of time: Running a business is a demanding job, and business owners simply don't take the time to devote to the process of preparing their companies for a sale. Between running day-to-day operations, managing employees, and dealing with other responsibilities, it can be difficult to find the time to focus on the process of preparing a business for a sale. This can make it difficult for business owners to take the necessary steps to make their company more attractive to potential buyers.
4. Lack of understanding of the process: An owner may not fully understand the value of their company, or they may not know how to effectively market their business to potential buyers. This can make it difficult for business owners to properly prepare their companies for a sale ultimately leading to the owner having an unsellable business. Most business owners ever only sell a business once, so they don't know what to expect. They may not understand the importance of things like having detailed financial statements, having a solid business strategy, or creating a strong management team. Without this understanding, they may not realize the importance of these things until it's too late.
5. Not ready to let go of their company: Owners develop a sentimental attachment to their business, or they may not be willing to part with the company that they have built from the ground up. This emotional attachment can make it difficult for business owners to take the necessary steps to prepare their company for a sale, which can ultimately impact the success of the sale. Business owners fail to prepare their businesses because they are not emotionally ready to let go of the business. For most business owners, their business is a huge part of their identity, and they have a challenging time letting it go. They may be so attached to the business that they don't want to think about selling it, and they may put off preparing for a sale until they are emotionally ready to let go, which typically does not happen.
6. Lack of access to the right resources or support: An owner may not have access to a team of professionals who can help them navigate the process of selling a business, or they may not have access to the right financial tools that can help them make informed decisions. Along with this, owners may not understand what resources are available to assist them in the process.
7. Don't want to spend the money: Preparing a business for sale can be expensive. Business owners may need to spend money on things like updating equipment or hiring consultants to help with the process. For some business owners, the cost of these things may be prohibitive, and they may choose to put off preparing their business for sale until they can afford it. Unfortunately for many owners, not understanding the value a team of professional advisors will bring is a roadblock as well. Exit planning professionals can significantly increase the value of a company by identifying areas in a business that drive value that could be improved, and by providing the discipline necessary to make those changes.
8. Simply do not know how: They may not know where to start, or they may not know who to turn to for help. Without the right resources, they may not be able to get the information they need to properly prepare their business for sale.
By understanding these reasons, business owners can take steps to address them and better prepare their businesses for a successful sale. It is critically important to seek advice and guidance from professionals such as a business exit planner, a business brokers, accountant, or attorney, to ensure that all the necessary steps are taken to prepare the business for a successful sale.
Evidence shows that by taking the time to prepare for a sale, a business owner can significantly increase the sale value of their company. It's important for business owners to start thinking about a potential sale as early as possible, educate themselves on the process, be willing to invest time and money, and seek professional help if necessary. This will help them to achieve better results and a higher sale price for their business. Research and real-life experience show that taking the time to prepare a business for a sale in advance results in better outcomes and higher valuations.
The recently released study by the Canadian Federation of Independent Business (CFIB) in Canada (January 2023) highlighted that over the next ten (10) years, seventy-six (76%) percent of business owners plan to transition out of their businesses. This represents over 700,000 businesses across the nation whose business owners want out.
As well, the study found that ONLY nine (9%) percent of owners have a plan for how they expect to make the transition. Most of these business owners will need the proceeds from the sale of their business to fund their future lifestyle needs, yet most will not realize this because only ten (10%) of businesses actually sell successfully.
So, the question then becomes, do you want to be the 1 in 10, or part of the 9 who are unsuccessful? Ultimately, the business owner will decide, but they had best understand the consequences of their decision.