Selling a business can be as complex as building it, with various factors influencing whether a sale is successful. Understanding the common reasons businesses struggle to attract buyers can help owners prepare more effectively, ultimately enhancing their chances of finding the right purchaser at the right price.
In her session, The Best Present You Can Send Your Clients this Christmas!Kirsty McGregor gave nine key reasons businesses often fail to find a buyer when attempting to sell.
1. Lack of Profitability
Analyzing Key Components: Profitability is the cornerstone of a business's appeal to potential buyers. A business must generate sufficient profit after covering all salaries and operating costs to be attractive. The file highlights the importance of "adjusted profits," which takes into account various expenses like director salaries and dividends, giving a clearer picture of the company's actual earning potential.
Synthesis of Information: Buyers are primarily interested in the return on investment (ROI). As the text notes, businesses often misprice by focusing on revenue rather than profitability. Hence, ensuring that profitability is maximized before listing the business for sale is crucial.
2. Business Size: Too Small or Too Big
Identifying Relevant Patterns: The file discusses that businesses often struggle because they are either too small to interest larger buyers or too large and have outgrown the market's buyers' pool. For smaller firms, the challenge is proving growth potential and operational stability. For larger businesses, the problem is finding buyers with sufficient resources or strategic need for such an acquisition.
Evaluating Potential Solutions: Smaller businesses should focus on demonstrating growth potential and operational independence. Larger firms need to identify and target potential buyers early, possibly considering strategies like breaking the company into smaller, more sellable units.
3. Poor Systems and Operations
Analyzing Key Components: Businesses heavily reliant on the owner or lacking robust operational systems are less attractive. Good systems indicate a well-run company, which reduces risk for buyers. The text emphasizes the need for dependable operations, comprehensive financial data, strategic planning, and sound management practices.
Synthesis of Information: Implementing reliable operational systems and delegating effectively are essential steps. Creating a business that can function independently of its owner makes it a less risky investment.
4. Inadequate Management Structures
Identifying Relevant Patterns: Autocratic management styles can deter buyers. The file example of the hoarding business showcases how a central figure unwilling or unable to delegate tasks can hamper sale efforts.
Evaluating Potential Solutions: Preparing a business for sale involves creating a capable and independent management structure. Business owners should focus on developing a strong second tier of management and promoting a culture of delegation.
5. Market Conditions
Analyzing Key Components: The timing of the sale in relation to market conditions can greatly influence success. The text mentions that events like impending budgets can cause market uncertainties affecting buyer interest.
Synthesis of Information: Owners should stay informed about market trends and economic indicators, planning sales during stable or favorable conditions. Preparing for a sale should include an understanding of when market conditions’ timing might yield the best results.
6. Owner's Readiness and Motivation
Identifying Relevant Patterns: The personal readiness of the owner to sell is critical. The document shares instances where sales fell through because the owner wasn't emotionally or practically prepared to exit.
Evaluating Potential Solutions: Owners need to prepare themselves for the sale as much as they prepare their businesses, ensuring they are genuinely ready to move on. Implementing 'push and pull' factors—having plans and goals post-sale—can smooth the transition.
7. Timing of the Sale
Analyzing Key Components: Selling too soon or too late can both be detrimental. Selling too early might mean the business hasn't demonstrated its full potential, while selling too late might indicate decline. The text provides examples of businesses in each scenario.
Synthesis of Information: Understanding the optimal timing involves recognizing when the business is at a stage that it can showcase sustainable growth potential and market stability. Properly timing the sale ensures maximum value.
8. Sector-Specific Challenges
Identifying Relevant Patterns: Certain sectors may have unique challenges, like the hospitality industry mentioned in the file. Sector-wide crises or trends can impact the attractiveness of businesses within that field.
Evaluating Potential Solutions: Business owners should conduct thorough market research to understand sector-specific trends and challenges. Adapting business strategies to align with favorable sector conditions can improve attractiveness.
9. Unrealistic Price Expectations
Analyzing Key Components: Unrealistic price expectations can be a significant barrier. The document emphasizes focusing on profitability over revenue and mentions instances where high prices based on turnover, rather than tangible profits, deterred buyers.
Synthesis of Information: Setting realistic price expectations is crucial. By basing the sale price on adjusted profits rather than emotional attachment or speculative revenue figures, sellers can better align with market expectations and buyer interests.
In conclusion, preparing a business for sale involves a multifaceted approach, addressing profitability, size, operational systems, management structures, market conditions, and the owner's readiness. By diligently considering these factors and strategically positioning the business, owners can significantly enhance their chances of finding a suitable buyer and achieving a successful sale.
For the full session, please click here. Kirsty McGregor covers the following areas during this course:
The 9 reasons businesses can’t find a buyer when they want to sell
Resolving their potential challenges with Exit Planning now
What a good business looks like to a purchaser
Which clients should be considering Exit Planning – or acquisition?
Opening the conversation with marketing content over the Christmas period
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.
