Your Business hasn't Sold...Now What?
We estimate that over 80-90% of businesses coming to market don’t sell.”
Jim Peddle, Business Broker, President
Understanding Why Your Business Hasn’t Sold & What You Can Do About It
Key Reasons Your Business Isn’t Selling - Tips for Business Owners Exiting their Business
Despite your efforts, not every business listed for sale finds a buyer quickly. This post explores common reasons your business might not be selling and offers strategic solutions to address these challenges effectively.
common issues preventing sales;
High Listing Price: Often, businesses are priced too high relative to their cash flow or Seller’s Discretionary Earnings (“SDE”) The Listing Price is too high relative to the cash flow or “SDE” (Learn about SDE here)
Customer concentration is significant - any customer greater than 20% can be problematic for buyers as well as lenders who prefer a broad customer base.
High Working Capital Needs: If your business requires significant capital to operate, it can be less attractive to potential buyers.
Low Cash Flow: Businesses generating less than $250,000 a year in SDE may struggle to attract serious interest.
Key Employee Dependencies: Lack of Key Employees or established processes for staff can turn off potential buyers. Too much dependency or perceived dependency on the seller is an issue as well.
Unorganized Facilities: Messy and Unorganized Facilities suggests management issues.
Addressing the Common Issues with actionable solutions;
Customer Concentration Challenges:
This specific issue is really common, banks don’t like it and buyers always want to knock down the price of business because the risk of losing one customer changes the value of the business tremendously. In my experience, the relationship is usually very strong with the Seller and there are good reasons for the buyer to retain this relationship. If you are the owner, ask the client for a contract that can be open-ended or is for 2-3 years in length. If this isn’t an option then look to structure contingent payments with the Buyer post-closing. Or negotiate an employment agreement that carves out this relationship and you the Seller help manage it for a time period after closing.
Possible Solutions:
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
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 to underwrite deals with negative year over year revenues, in addition, most Buyers aren’t able to always determine what is the 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 Solutions
(A) Offer heavy seller financing & earn-out, royalty payments
(B) Sell to a larger strategic competitor that is less concerned with declining sales
(C) Delay selling and make an investment in sales & marketing. **
Older Staff Members 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 extended training & transition to a buyer to alleviate concerns about staff,
B) Cross train existing staff, document the staffing responsibilities
Real Estate - Facility Issues:
When the property 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 a free and clear real estate with no mortgages and the financials show 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.
Other Possible Solutions
A) Offer Buyer a rent structure that has below-market rent for a period of time
Note: Beware of SBA Requirements
B) Offer a Lease Option to Buy Structure
C) Offer a 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 end up financing a buyer who will only underpay to offset their risk.
Other Possible Solutions
A) Get professional help- ask your business broker for a CPA referral or bookkeeper to take over this job.
B) Switch accountants - Pay for an upgrade of the books and have a CPA complete monthly or quarterlies for you.
If you would like to discuss your individual situation directly with us feel free to email or call Jim Peddle at 312-525-9622 or president@playbookadvisory.com. Our experienced team of business brokers have significant experience that can overcome many of the above related issues when selling.
Other Reading:
Ten Issues Sellers Need to Review Prior to Listing a Business
Maximize your Profit: Hiring a business broker is Smart Business