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Playbook Advisory resources, Business Broker 101 for buyers & sellers

Our Blog is an honest and direct discussion of topics related to the business brokerage industry. Call Jim Peddle at 312-525-9622 for immediate help with your business needs.

Playbook Advisory Resources - Business Broker 101

Your business isn't selling...now what?

“I have a good business, it should have sold right away, what can I do to make this happen?"  

Every business broker who has been in the business long enough will have the displeasure of experiencing a listing that doesn’t sell. The reason for the non-sale is very rarely specific to one issue, however, I can recall some unfortunate luck for some brokers, like the time a fire ravaged a business within weeks of a scheduled closing. At least this business had a buyer ready and willing to close.

 

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Suggestions for Business Owners having difficulty Selling their Company

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Take an honest assessment of what is happening today **

The business has an issue(s) specific to the Company -Here are five examples & possible solutions to address the deficiency;

Customer Concentration-A tough one because buyers get nervous, banks don’t like the added risk and Sellers aren’t really focused on diversifying their risk with proper planning before the company goes to market. What can you do? Maybe not much.

Possible Solution: a) Offer the Buyer heavy seller financing & an earn-out structure, or future royalty payments, b) Sell to a larger strategic competitor that dilutes the concentration risk, c) Take business off the market and seek professional marketing help to better understand any opportunities to diversify this risk.

Declining Sales – Another tough issue to deal with for a Seller and Business Broker. How significant is the decline? 1-5% is different than losing a top 5 customer and seeing declines of 15-20%. Banks don’t like declines and Buyers aren’t able to always determine if there is added risk. Sellers should assess the reasons for the decline prior to going to market. Can the issue be remedied? If yes, read on, if no, go to the end of this article for final recommendations

Possible Solution: a) Offer heavy seller financing & earn-out, royalty payments, b) Sell to larger strategic competitor, c) Delay selling and make investment in sales & marketing.

Older Staff Members also near retirement– I recently had this issue as the Company’s employee census uncovered an experienced staff, but also the majority of employees close or beyond the age of normal retirement. One of the staff members was in their 80’s. Of all the issues for a business this one can be properly managed with the help of a strong training and transition agreement with the Seller.

Possible Solution: a) Offer Buyer an extended training & transition

Real Estate is worth more than the Current Business Can Afford to Pay-This one is so common here in my hometown of Chicago, IL. Almost every week I come across a business that has free and clear real estate with no mortgages and the financials show a business with below market facility costs. Due to the complexity, of this issue I strongly recommend Business Owners speak to an experienced real estate professional to best determine the plan of dealing with this prior to listing the company for sale.

Possible Solution: a) Offer Buyer a rent structure that has below market rent for a period of time (Note: Beware of SBA Requirements), b)Lease Option Structure, c) Credit to Buyer to move the business & equipment.

Weak Company Financials-No business owner should attempt to sell with messy or incomplete financials. You either never sell or finance the buyer who is crazy to take the risk or will only offer a very below market price.

Possible Solution: a) Get professional help, b) Switch accountants, c) Use Brokers recommendations

Scenario Two:

Your Business didn’t sell because of your Business Brokers inexperience. The number one mistake I see Business Owners make is to list their business for sale with a Business Broker who doesn’t have enough experience to handle the listing from start to finish. The marketing and listing of a business for sale can be very complex as there are a number of issues that can come up during the sale process. It really helps to have someone on your side who has closed enough transactions to assist when problems come up. Negotiating and handling buyers who most likely have never bought a business before is an animal in its self. There can be swings in moods as the buyer deals with spouses, friends and neighbors weighing in with their “recommendations.” Get someone who you trust can see the sale go all the way to the finish line.

Possible Solution: a) Go to Bizbuysell or Bizquest and click on the Broker’s link and contact 3 business brokers to discuss why your listing did not sell. Listen to their recommendations.

Scenario Three:

You may have the right Business Broker, however, the Buyer has not been located. Stay the course, work inside your business and take an honest assessment of your listing price, the marketing of the listing and the structure being offered to Buyers. It’s not just price but the other parts of the deal that can make a difference. Seller financing and training and transition are important elements of the deal. Be flexible and non-judgmental of the Buyers coming in to meet you.

Recommendation: Sign the listing extension and keep working with your Broker to find qualified Buyers.

Conclusion

If you are the owner who has tried and failed to sell but you are still motivated to find a great home for your business don’t lose faith. Stay positive and work diligently to identify issues and come up with potential solutions. Finally, focus on why you want to exit the business, your next journey will make your perseverance worth it in the end.

Best of Luck!!