The Perfect Business
By Robert A. Kent, Sr.
Certified Business Intermediary
In today's economy, the unfortunate reality is that it is very difficult to sell anything, even a business, no matter how old or profitable that business may be. However, even in a thriving marketplace, the sale of a business can be made more difficult because of poor timing, an unwillingness to finance, or unreasonable expectations on the part of the seller or buyer.
Once you have made the decision to sell, the odds of your business actually selling are only 18 percent if the annual revenues of your business are $750,000 or less. Keep in mind that approximately 75 percent of all businesses have annual sales of less than $750,000. In other words, you have about a one in five chance of your business actually selling. So why are the odds so poor? Perhaps the buyer can't get financing, or the seller gets distracted by an arrangement with a friend to solicit offers that never come through. Perhaps the buyer is intrigued, but the economics of the deal don't make sense, and the seller won't negotiate. Or it may be that too many sellers wait to sell until the economy is down, and then discover that the price they thought they could get for their business is not realistic in today's market.
When talking to experienced intermediaries, the lack of financing emerges as one of the more common reasons for a deal to sell falling through. The more typical comments are that "financing was impossible to find," "the buyer couldn't get financing," or "the deal fell apart for lack of financing." Financing is often difficult to obtain because neither the business nor the buyer actually qualify for financing. Most small businesses are not financeable in any case. Banks are generally not interested, and the Small Business Administration (SBA), although certainly an option, only comes through in less than 10 percent of deals.
If lenders are not interested in financing the sale of a business, there are only two choices: the buyer pays all cash, or the seller finances the sale. Counting on the business selling for all cash or assuming that the business can be financed will most likely make your business one of the five that doesn't sell. By showing your willingness to assist in the financing, you are reassuring the buyer that you have confidence in the business' ability to finance itself. Also, keep in mind that by financing the business you will be entitled to interest on the balance, thereby increasing the price you will receive.
Make sure that you are serious before you put your business up for sale. You should be willing to accept, within reason, what the marketplace is willing to pay. It's not what you want for your business, or what your accountant says it's worth: it's what a buyer is willing to pay. Find out if the price you are asking is in the "ballpark" before you go to market. A business brokerage professional is a good place to start. He or she can tell you what similar businesses have sold for and what you might expect to receive if you sell now.
Following these guidelines might not sell your business, but it will certainly increase the odds. Almost any business will sell under the right circumstances. The business that would be sure to sell is reasonably priced, has a compelling reason for sale, is in a desired or popular industry type, has an attractive and strategic location, and is one in which the seller is willing to finance a portion of the sale.
There's an old saying that goes, "The worst day of working for yourself is better than the best day of working for someone else." Both sellers and buyers should remember this, and, by each knowing well what the other is hoping for, the seller will relinquish and the buyer will acquire "the perfect business".