Here’s a sobering fact — in today’s market, only 16% of business owners who want to sell are actually able to sell their business.
Fully 70% of business owners aren’t even able to bring their business to market.
The numbers are a little better for family-owned businesses. About 30% are successfully transitioned to the next family member in line.
But still, those aren’t good odds.
No matter what type of business you own, selling or transitioning is tough, plain and simple.
Here are a few reasons why.
Why Businesses Fail to Go to Market, Sell, or Transition
There are several major reasons why businesses fail to go to market, fail to sell once they’re there, or fail to transition to a family member.
1. Overvalued by Owner
One of the biggest reasons that a business fails to even make it to market is that the owner has overvalued their business.
They have a number in mind that they want — often tied to retirement plans — and the reality of the market just doesn’t align with what they want.
When a business owner isn’t willing to face the reality of the market, they’re going to have a tough time even getting their business on the market in the first place. They have to have something truly unique going on if they want even a chance at selling at an overvalued price.
2. Declining Sales Trends
Another big reason that a business fails to sell is that its sales are declining.
Put yourself in the buyer’s shoes. Do you really want to buy a business that’s making less and less money each year?
This is an absolute deal-breaker. If you can’t show an upward trend in sales, then a buyer is going to see no benefit in buying your business.
A business that isn’t growing (or that’s actively shrinking) is a business no one wants.
3. Dated Business Practices
If a business in 2022 is still using the same business practices they put into practice in 1982, it’s going to be a tough sell.
A buyer would have to put a lot of work into changing those business practices, work that they wouldn’t have to put into a similar business that has modern business practices.
Even implementing that change could be risky for a buyer. People don’t like change. Valuable employees could decide to leave if the buyer comes in and starts to make huge changes. The business could struggle for a while.
It’s a big risk that buyers just don’t want to take, not to mention a lot of work. And in today’s saturated market, why would they bother with a business that requires so much work when there’s a similar business that requires none?
4. Customer Concentration Issues
Just like with investing, if all your money is concentrated in a few sources, there’s more risk than if it’s spread out.
If you have only a handful of clients, losing even one client could cause significant damage to the business. It’s not uncommon for clients to leave when a business changes hands. A buyer needs to make sure that losing one or two clients isn’t going to impact their revenue.
Even if you have a lot of clients, you still have a problem if you have only a few very large accounts, where losing even one account could cut a huge chunk out of revenue.
You need to have a more diverse client base with more evenly spread out revenue to reduce the risk of buying in the eyes of your potential buyer.
It’s a Buyer’s Market — And It’s Only Going to Get Worse
Baby Boomers are retiring, and they’re selling their businesses as they do so.
In fact, 75% of business owners plan to exit in the next 10 years.
That means the market, which is already saturated, is going to be flooded with businesses looking to sell. Buyers can take their pick and will pass over any businesses that even have a hint of a problem…
Unless those smaller problems can be ignored because the business is so unique that there’s just nothing else like it on the market.
If you want to sell successfully in today’s market, you must be best in class.
Learn How to Put Your Business in the Best Position to Sell
The Owners Edge is a library of content that will teach you everything you need to know to prepare your business for sale.
It will help you become best in class so that, even if you don’t sell, your business will run better than it ever has before.
Ready to build your business’ value?