By Ward Adams, Jul 28 2019 12:03AM
One of the major online business for sale listing organizations once calculated that an average of 30,000 businesses are newly listed for sale during any three-month period. During the same time frame only 1,200 to 1,500 businesses will be sold. The odds of a small business being ever sold is 12% to 15%.
The reason for this bad news is based on three influencing factors: a. What is the basis of the revenue; b. Is the owner and the business one and the same; c. Has any thought been given to attracting the best buyer prospects
1. How does the business create its revenue?
It is a simple concept but the best business to sell is one that has reoccurring income. The most attractive business for a potential buyer has income generated from a customer base that makes multiple purchases. The modern-day version of the old Kodak camera business model involves the manufacturing of personal computer printers. Purchasing a printer is a relatively inexpensive and infrequent proposal but after only a short period of time the cost of the ink exceeds the initial cost of the printer. The ink provides an ongoing income. Once a customer is established, a landscaper has ongoing revenue because the need for the service is ongoing. A used car lot on the other hand is less attractive because without the opportunity to service what they sell there is no ongoing revenue.
2. Is the seller the business?
The second reason small businesses don’t sell is that the owner is the sole reason the business exists. If the owner possesses a unique skill set and that skill is not duplicatable by any buyer, the pool of potential buyers is severely limited. A barber shop is good because the need for haircuts is ongoing. It is not good if the seller is a one-person shop unless the buyer is a licensed barber/stylist. The odds increase if there are several barbers/stylists in the shop and the new owner fill the position of manager.
Another potential issue is created if the personality of the seller is the key to the business.
Do customers do business with the seller just because of his or her personality or long-term relationship? The goal is for the owner to be almost passive and not essential to the day-to-day operation of the business.
3. Who is the best fit as a buyer of the business?
Most sellers subscribe to the throw it on the wall and see what sticks theory. While all will profess that they want to see the business they have built continue, most will take the money and run. Often when seller financing is suggested the owner will express a lack of confidence in a buyer’s ability to continue the business long enough to pay off the loan. What does that say about the buyer(s) being selected? What does that say about the business?
When selling a business, owners should consider who and how they are presenting the business. What features attracted them to become involved in the first place. As much as we like to think so, none of us are unique. When starting the process of selling a business, think about selling your business to you.
A good broker earns his salt by understanding the business and appreciating who would make a good interested buyer. The broker must tailor the presentation or sales message to be attractive to qualified buyers from not only a financial aspect but one of interest in the business segment as well.