We estimate that over 80-90% of businesses coming to market don’t sell.”

Jim Peddle, Business Broker, President

Every business broker has listings that can’t seem to get a qualified and motivated buyer to purchase the business. This article addresses issues for those businesses that aren’t selling and suggestions on what you can do.

First, have you been notified of any issues while on the market? What feedback are the buyers giving your business broker? If you aren’t hearing of any questions or concerns then you need to address it with your professional because they should be hearing directly from buyers about why they aren’t interested.

Common issues we see when a business isn’t selling;

• The Listing Price is too high as a multiple of cash flow or “SDE” (What is SDE?),

• Customer concentration is too high or the top customers account for 60-80+% of the business

• High Working Capital needs for the business necessary to run business,

• Cash Flow is too low (Under $100k a year in SDE)

• Lack of Key Employees or established processes for staff

• Messy and Unorganized Facilities.

In this post we will address 5 issues with some suggestions on how to handle the problem;

Customer Concentration:

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 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 Solutions

A) Offer heavy seller financing & earn-out, royalty payments

B) Sell to a larger strategic competitor

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

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.

Other Reading:

Ten Issues Sellers Need to Review Prior to Listing a Business