You’ve worked hard over the years as the owner of a successful business and you’ve decided that it’s time to sell. “No problem,” you think, “I’ve made a nice living with my business, so it should sell quickly.”
Not so fast…..statistics show that of all the small businesses that go to market in the US, only 25% actually sell. In other words, 3 out of 4 businesses don’t sell; on many occasions, they even go out of business. This is disappointing for many owners who have put in a tremendous amount of sweat equity, as they do not see a return on their investment. Unfortunately, many small business owners have most of their net worth tied up in their business.
Here are five signs your business is not sellable:
- YOU’VE BEEN HANDED OFF TO A ROOKIE INTERMEDIARY.
Upon contacting a business broker or intermediary, and providing information about your business, the sale of your business is assigned to a rookie intermediary. This is a sign that your business is not sellable; if it were, an experienced intermediary would sign a contract with you. Ask your intermediary how long they have sold businesses; if they are new, this could signify that your business is not sellable.
- YOU ARE THE BUSINESS.
If your business cannot survive without you, it is not ready to be sold. You cannot be so connected to your business that you rarely take time off. In order to sell your business, you will need to remove yourself. Remember: the buyer is not buying you and your business expertise, they are buying a strong business with a reliable infrastructure of employees and well-built systems in place.
- HIGH CUSTOMER CONCENTRATION.
Consider your customer concentration: who are your main customers? Let’s say one of your main customers is a Fortune 100 company; you may be proud of this, but it’s possible that your company could be investing too much time and effort into this client. Soon, this single customer could become the source of 50% of your company’s revenue. Most buyers will avoid purchasing a business with such a high customer concentration, as it presents a high risk. In general, it is best to let no more than 10-15% of your revenue come from anyone customer.
- UNORGANIZED FINANCIALS.
If you do not have organized financials, you should not attempt to sell your business. You may think that if money is in the bank and business is good you don’t need to hire a strong CFO or bookkeeper to organize your financials, but this is untrue. You need to have clean, organized financials, before you decide to sell. This includes three years of upward-trending revenues and profits as well as multiple types of financial reports. Providing these reports quickly upon request is extremely important once you engage with a buyer. If a buyer senses unorganized finances, they will move on.
- YOUR KEY EMPLOYEES ARE AGING.
While it may seem that a team of key employees that has been with your business from the start is an advantage, it may be a sign that your business will not sell. While strong employees who know your business well should be a great asset to a buyer, this may not be the case. If these employees have been with the company as long as you have, chances are they are close to your age; you are retiring, and they may be close to retiring too. Buyers pick up on this instantly. Make sure you are constantly grooming future key employees to step in and take over critical positions.
Businesses whose owners do not plan for their sale tend to join the 75% of small businesses that don’t sell. If you are interested in selling your business, I recommend that you begin to plan your exit at least 3-5 years in advance. During this time, engage with a business coach or exit advisor to ensure you are prepared to sell.
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.