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Why Don't Businesses Sell?

A large percentage of businesses listed for sale never do.  Following are the “Dirty Dozen” reasons why businesses fail to sell.

  1. Priced unrealistically high.
    • Errant multiples and rules of thumb: You’ll hear many multiples that are used to price businesses.  Multiples of sales, EBITDA, Seller Discretionary Earnings, and net income to name a few.  5 times net income may be appropriate, where as 5 x Seller Discretionary Earnings may be entirely unrealistic.
    • Seller has an unrealistic view of the value of the business assets. The Seller knows how hard it was to build, buy, and maintain.  Sometimes it is hard to see that a buyer would not have the same value perception when they didn’t have the blood sweat and tears to build it.  Your “baby” is only worth the earnings it can generate to a buyer.
    • Seller debt: Sometimes the amount the seller owes on the business is more than the market value.
  2. Insufficient earnings to support the buyer’s needs. Usually the seller has enjoyed recent years with less financing payments.  Remember the cash flow crunch days and what it would be like with your current earnings after making the financing payments for your sale price on top of normal operating costs.  Does your business earnings support payments and an expected lifestyle of most buyers today?
  3. Incomplete business records
    • Camouflaged financial reports will not pass buyers and their lenders requirements.
    • Missing data will lead buyers to squint and cause anxiety that can and does cause deals to implode.
    • Even slow information gathering can kill deals.
  4. Inability to transfer or negotiate a new buyer lease. The landlord is king in business sales.  Ideally a seller would have significant time remaining on a lease that can be transferred or other leasing options.
  5. Decreasing sales and / or earnings. No one likes to catch a falling knife!  Would you pay more, the same, or less for a business with rising, stable, or decreasing sales?  If sales are decreasing rapidly, it may be a foot race to decrease price to the point a buyer will accept the cost and risk of rebuilding the sales.
  6. Inability to obtain lender financing requirements. If it doesn’t make sense to a lender, perhaps it is over-priced for the earnings?
  7. Lack of Seller financing. All buyers and most lenders like the seller to have some skin in the game.  The majority of closed business sales have some seller financing involved.
  8. Lack of confidentiality: Sometimes sellers that try to sell their own businesses find they have no business left to sell after word leaks out to their employees, customers, and vendors.
  9. Outdated equipment and / or processes. Some of the equipment and processes you are proud of have become more obsolete than you would like to admit. Not replacing old equipment can make the business feel outdated and lower its value.
  10. Inappropriate information timing in negotiations and due diligence. All buyers want to start the training process early.  Rarely, does anything good come from this, and has been known to kill deals.
  11. Pride, win-lose, and micro-managed negotiating tactics prevent counter offers from being signed. Personalizing low ball offers creates emotion that stops discussions from continuing that could have potentially ended in a sale.
  12. Timing sucks: Timing is everything.  There are good businesses that are priced right that won’t sell just because of lousy timing.  The take home message here is: Make hay while the sun shines.  The timing to harvest the highest value for your business is rarely the same as the ideal time to retire.  For value optimization, it is almost always better to sell on the highs of the business performance than after you have coasted awhile.  Selling during good times when lender capital is available is good.

Bonus reason:  13. Trying to hide negative business information.  It almost always comes out in due diligence, and can destroy a sale.  It is almost always better to disclose everything up front and develop a plan to explain or fix the problem issue.

Here’s the good news:

All businesses have a wart or two.  Just because you have some of the above things going on in your business doesn’t make it unsaleable. Transworld Business Advisors are experts in market valuation, marketing your business confidentially, negotiating, and process flow to optimize your chances of a successful sale.  We can help with all of the dirty dozen except #12.  The timing is up to you. While no one can predict the best timing, most can see that now is a great and vital business climate with good capital accessibility.  Give us a call if you would like to know more of our proven and confidential business sale process.

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Our Sellers except us to achieve the highest and best offer for their business while taking the least amount of their time away from it as possible. That is because the absolute best use of their time is to continue to run and grow the company.  If revenue or profits begin to decline, buyers will walk away or decrease their offer. Transworld's philosophy can be summed up in a ten step, how-to strategy that culminates with the sale of a company. This proven method has been used to sell hundreds of businesses.  Here are the steps. Step1 Comprehensive Business Analysis and Feedback As your business broker, the first thing in our how-to strategy is to analyze your operation, finances, market potential and industry trends. We take that information and advise you on steps to prepare your business for sale, and  generate a business profile that represents your company in the most attractive way possible. Step2 Sale Structure We identify the best possible price range to sell your company. This is based on solid facts, the condition of the market, projected growth, sales potential and the sale of similar businesses within your industry. Transworld’s experts apply sophisticated, time-proven valuation techniques to ensure that your price is appropriate for the current market condition. The price must not be too high or too low. Yet, it must represent an attractive investment potential for the buyer. Step3 Confidentially Network The Business For Sale During the selling process, we utilize the latest technology to present your company to other business brokers and strategic buyers all over the world. This greatly multiplies the effort in your favor. With Transworld Business Advisors, you have literally thousands of industry professionals confidentially representing your company to buyers.   Step4 Confidentially Advertise To Buyers Our aggressive marketing program ensures your confidentiality and provides maximum exposure for your company. Your listing is placed in various industry databases, Internet sites, and publications which are constantly updated. We spend more money in advertising and marketing for buyers than anyone else in our industry. Step5 Control The Information Flow We organize all necessary documentation and release information only as needed. We use limited information when advertising to maintain confidentiality. Buyers are pre-qualified and required to execute a confidentiality agreement before receiving any sensitive business information. Step6 Create Competition For Your Company We attract thousands of buyers, creating competition for your business. Buyers are qualified for financial ability to meet the offer, and we engage you with only the most qualified buyers. Once you meet the best of the buyers, we urge them to prepare and present all offers. We can continue to engage potential buyers on your behalf as negotiation on an offer is in process and have another interested party ready to go should a buyer change their mind. Step7 We Negotiate For You To Achieve The Best Price Appropriate negotiation is crucial to achieving your best price and terms. We have the expertise to establish sound and resourceful negotiating techniques on your behalf. Transworld has trained all of its agents in the art of negotiating through curriculum that we have created specifically for our industry. Never negotiate without planning, expertise, or from a position of weakness. Step8 We Provide Exceptional Support To You Through The Due Diligence Process We take pride in our exceptional service. Only half of the job is finding the right buyer who will pay your price and meet your terms. The other half is getting that buyer to the closing table. We quarterback the deal, work with the accountants, lawyers, banks, landlords, and other third parties that could jeopardize the success of the transaction. We realize that you depend on us to guide you through the sale of your business. We make the transition simple and easy for you. We know when an opportunity for you may arise and are always there to take advantage of it. We also know when someone is trying to kill your deal or is being unreasonable and how to handle those situations. Step9 We Are There From Beginning To The Closing We help manage all administrative procedures, licenses, inventory counts and lease assignments that may be required. Transworld works closely with your advisors to ensure a smooth transition. Using the latest technology, we strive to be ready to work on your behalf to get the deal done! Step10 We Are There For The Transitional Phase And Beyond! Because we are in the business community, you may want to consult us from time to time after the sale. We will provide you with the assistance after closing. Transworld will always remain in your corner! Schedule Consultation Now

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