8 reasons your business won’t sell – and what you can do about it.
If you are in a business that involves hard to get licenses and/or agency approval (such as the medical field) this can be problematic for a buyer.
Solution: You may be able to transition instead to a stock sale and alleviate the need for licensing and agency approval. You will need to discuss this with your attorney and CPA.
A business in which one or a few customers are responsible for the bulk of sales can be difficult to sell. What if your key customer goes out of business or takes their business elsewhere? This is a great concern for the buyer. It may also make it difficult to get Lender approval in the event a SBA loan is needed.
Solution: Diversify your customer base. Try to get key customers to sign long term contracts. This will give the buyer some assurance.
Rare skill set
Does the owner have a rare skill set? For example a certain type of engineering degree. If a new owner is required to have a specific skill set it will greatly narrow the pool of potential buyers.
Solution: It is sometimes possible for the departing owner to “sponsor” the buyer allowing him/her to continue to use the seller’s qualifications while becoming certified.
Too closely identified with owner
“Big Mike’s Pizza” sounds great. But if the customers too closely identify the business with Big Mike, a buyer will be concerned about how the business will continue when you are gone.
Solution: Consider a less personal branding for your business
Poor cash flow
Buyers are mostly concerned with net profit. This is why they buy a business. If your company is not generating sufficient positive cash flow it will be hard to sell.
Solution: Focus on growing your sales and managing your expenses. Cash flow will follow.
Buyers get nervous when they see a year after year downward trend.
Solution: Never take your foot of the pedal. This is especially important when you are getting ready to sell. A record of healthy revenue growth will make your business an attractive target for acquisition.
Landlords have the power to kill a business sale. They may refuse a lease assignment or place impossible conditions on the buyer.
Solution: Get to know your landlord, develop and maintain a good relationship.
A new competitor is eating into your sales.
Solution: Be open and honest with the buyer. Don’t hide the fact that you have been facing stiffer competition. The buyer will appreciate your honesty and may purchase the business anyway.
Anthony John Rigney
Quorum Business Advisors, LLC