Following are the most common obstacles that prevent a business from being sold:
Poor Accounting Records
Buyers need to be confident that what is represented about the business is true and they will seldom buy a business if the financial results cannot be documented.
Unrealistic Asking Price
Most businesses are valued at a multiple of their Seller’s Discretionary Earnings (“SDE”) which is EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization), plus all of the direct and indirect benefits that the business provides the seller such as salary, bonuses, auto expenses, health & life insurance, travel & entertainment, relatives on the payroll, toys, etc. Each industry has its own SDE range of values. Businesses rarely sell for more than what the numbers can support.
Seller Demanding All Cash
Financing is the biggest challenge in selling a business today. Seller financing is often required for from 20% to 50% of the sale price. Most buyers would prefer to purchase a $2M dollar business with 50% down vs. a $1M business for all cash, with the first business making considerably more money than the second one. Also, a seller note gives the buyer some assurance that the seller has been truthful and is committed to the buyer’s success.
Low Or No Profits
There are few motivations for a buyer to make a big financial commitment for the opportunity to work 50+ hours a week and make low profits or a loss. We have sold a number of underperforming businesses but such buyers are very difficult to find. A business with flat to down numbers is a big concern to a buyer as they do not know where the bottom is and when, if ever, results will improve.
Lack Of Trust
Buyers will seldom buy and sellers will seldom sell unless there is mutual trust and respect.
Customer, Geographic, Product and/or Industry Concentration
Concentration increases the risk to a buyer. Accordingly, the more concentration the more problematical it will be to find a buyer.
The big threats today for many businesses are: China/India, virtual/home based businesses, franchises, and a formidable competitor in the area.
Landlords kill many business sales by not approving the buyer/new tenant or demanding unrealistic lease terms. So, keep a good relationship with your landlord.
As with selling a home, first impressions are very important. A few thousand dollars spent on paint, cleaning or replacing carpet, fixing signage, de-junking, etc. can make a big difference in the number of offers we generate and the ultimate sales price of a business.
Limited To No Upside Potential
A business without growth potential is challenging to sell. Help the broker identify and document sales and earnings growth opportunities. Buyers will buy for potential but they will not pay much for it.
About The Author: You may contact D. Joe Atchison at 951-277-4002 for a no-obligation consultation regarding your business or a business that you are considering acquiring. Joe is a licensed Business Broker, a Certified Business Intermediary (International Business Brokers Association), a Certified Business Broker (California Business Brokers Association) and is a Certified Public Accountant.
|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.
|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.
|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 805-428-2063.
|Mani Singh, Business Broker, Inland Empire
I have successfully represented clients sell & acquire multitude of businesses ranging from Gas Stations, Liquor Stores, Markets, Super Markets, Smoke Shops, Postal Stores, Restaurants, General Retail, Auto and Construction related. Phone me for assistance with selling or buying at 951-296-7646 Cell
|Chris Seaman, Business Broker - San Diego County Area
Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Steve Erlinger: Laundry Broker, Consultant - Southern California
I specialize in the laundry industry broker and consultant in Southern California. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.
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