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Why Isn't My Business Selling? 6 Questions To Ask Yourself To Find The Answer

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Topics: Selling A Business     Tags: for sale by owner, selling a business

Comments & Replies: 4     Views: 1717     Post ID: 94     Comments About This Discussion
 
Contributor: Craig Osterhoudt, Business Broker - SF Bay Area    Post ID: 1126

I think an important section of your discussion Peter is towards the end where you discuss, is your business have something to sell. Many small business owners don't realize there are other profitable ways to dispose of your business besides trying to sell it in the open market. There are many factors that make a business difficult to buy, but that doesn't mean it doesn't have value.

One of my businesses in the past, I actually merged the business with another business in the area that was similar but not exactly the same. The other party in the transaction added significant revenue to his business, which in turn lowered his overhead. He also had additional capacity in things like accounting, admin, HR etc and therefore could absorb those expenses that I previously had to pay, and added to the net profit for the same service offering.

It wasn't only a great deal for him, but also for my side of the transaction. I secured an employment contract with the new company as part of the deal with a profit sharing structure that allowed for more dollars in my pocket than I would have made before the deal.

There are many other ways to dispose of your business, exploring all of your options before making a decision is the way to go.

 

I find that when potential business seller's use our Value Builder Analysis they end up with (1) a better understanding of the strengths, weaknesses, opportunities, and threats (SWOT) faced by their business, (2) an accurate idea of the specific items they need to change to make their business more valuable and more salable, and (3), a more realistic acceptance of the actual market value of their business.

While we use the Value Builder system, a professional business broker can use various other methods to help the potential business owner understand the realistic prospects for the business sale. A prospective business seller should look for a business broker who is willing and able to do a comprehensive SWOT analysis and be brutally honest about the pros and cons to a successful business sale. Going with the broker who promises the highest price or offers the lowest commission is not necessarily the best approach.

 

Great Discussion Peter.

I have a general feeling about which businesses will sell and which ones might not when I take the listing, but I have been surprised over the years, which is why I always market both aggressively. As brokers, we become a little incubated, because we deal with mostly our own listings, but the buyers who are actively searching every day I find develop a sixth sense about which businesses will work and which ones will not. A business might look good “on paper” but when I send the buyer out and then follow up they will say something like “pass” and if I push for a reason, I might just get “can't say, just a feeling.” Buyers who are constantly looking at inventory can get a snapshot of what the market is because they can compare from all the business they have seen. Seasoned buyers will usually come to me with the same questions on a business that they use to either move forward or look for something else.

1. “What's the rent?”

The number question that comes out of every buyer’s mouth. If the rent is too high and can’t be justified by the monthly gross sales then it makes the business very hard to sell, not impossible, but difficult. Every buyer knows that the rent is the albatross that will be hanging around their neck every month as they operate their business, and so if it must be manageable.

2. “How's the lease?”

The lease terms are very important. If the seller is asking $300,000 but there is only 2 years left on the lease, and the landlord won’t commit on any additional years, then the buyer has no idea if they will be able to recoup their investment.

3. “How's the area?” (Curb appeal)

Some of the highest grossing liquor stores also happen to be in the highest crime areas, and so even though dangerous, they sell. If the owner isn’t taking precautions to detract crime, then it can affect the sale, because who doesn’t want to feel safe at work? A seller should have a bright store (inside and outside), clear windows, neighboring businesses that feed off each other, and working surveillance system for internal and external theft.

4. "Do they have good books and records"

We all understand that small businesses are often cash businesses, although more and more is done with debit/credit cards, but it's still important to have good records to sell a business. The owner can show bank deposits, inventory purchases, etc. Most buyers need to have some sort of financial picture of the business before making such a large investment. Buyers can often tell very quickly if they feel the seller has misrepresented the business on paper by observing the business during peak hours.


When the time comes to sell a business, most owners begin the process with expectations for a quick and easy sale that results in the profit margin they need. Several months in they begin to ask “why isn’t my business selling?” when things don’t go according to plan. The truth is it can take months, even years to sell a business. Even then, the likelihood of your business selling is never 100%. Only 10% of small businesses for sale actually end up selling!

So what is the problem? Well it could be a number of things. Even if you think you have things in order, here are 6 questions below to ask yourself to help you determine why your small business isn't selling.

Are you working with a experienced, motivated, professional Business Broker?

Working with an motivated, experienced (and professional) Business Broker is going to help you on a number of levels. If your business isn't selling and you are not working with a experienced, motivated broker or agent, I would consider hiring one (make sure they are experienced and professional!) ASAP. A Business Broker will be able to take a look at your business and help you prepare it to be sold and priced correctly. They will also help you market your business and get it in front of a qualified pool of business buyers and be able to close quickly and without complications.

If you are currently working with a broker and the company still isn’t selling, take a good look at what the broker or agent is doing for you. As I said, these things take time so I wouldn't suggest dropping your broker for a new one after a 3 to 6 months on the market but start paying attention to what they are doing to sell your business. As time passes if you feel they aren't doing what they need to in order to help you sell your business then it may be time to consider hiring a new broker/agent/intermediary (this is more motivated, experienced, and professional)!

Is your business priced correctly? Is it too highly priced?

Selling price is one of the biggest factors that contribute to a small business not selling. Most overpriced businesses are not going to be attractive to buyers in today’s market because they have other options. If a buyer reviews a business and feels it is overpriced they may not even bother reaching out for additional information. The same holds true if the business is priced too low. Low prices raise a red flag for some buyers and they start to wonder what is wrong with the business that is priced below market value. If you have not already, get a professional to evaluate your business and place a value on it, then consider adjusting your sale price if it makes sense.

Is your business attractive to potential business buyers?

Not every business is a good fit to be sold on the open market. Some companies rely heavily on the owner’s skill set to be successful. Others have good profits on project work, but minimal recurring income. Other companies grow with just a few big customers that they rely on for a bulk of their income. Companies like these are not going to be attractive to potential buyers as they are often difficult to transfer ownership of and maintain the same level of profit.

Do you have a solid marketing strategy in place to market your business for sale?

What are you doing to let potential business buyers know that your business is for sale? If your broker is in charge of this, you should already know what they are doing, but if you do not, ask. You should have a marketing strategy in place to make potential buyers aware that your business is for sale. If you are trying to do this yourself, the same applies. With the ProSell Program at BizBen we have an entire selling strategy, protocol, and list for owner/sellers, brokers, agents to follow for success.

Are there things you could to make the business more attractive to buyers?

Sometimes it can be hard for an owner to look at their business objectively and be critical of it. If you can’t do it yourself, ask your business broker for help. Ask your broker if there things you could do to make the business more attractive. Maybe your business could use a little facelift to improve its physical appearance. Or, maybe you could build seller financing in to your sales pitch. Offering additional training to the new owner is also something you could consider.

Does your business have something to sell?

This goes back to being realistic with yourself and if you’ve been working with an experienced broker, you should have addressed this question at the start of your sales process. But, if your business is not selling it may be time to ask yourself, "does my business have something to sell?" While you may think you do, the opposite could be true and in this case you may want to consider other ways of closing up shop and profiting from some of your hard work.


  Helpful Resources To Assist In Selling And Buying California Businesses

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.


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