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|
|Helen Yoo, New Century Escrow - Escrow Services In 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.
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
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.
|Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence
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.
|Lee Petsas, Business Broker - Southern California Area
Lee Petsas has been selling businesses with UBI Business Brokers in Southern CA since 1981. In 1999 he became the Owner and Broker for UBI. He has been approved multiple times by Courts as an Expert Witness in the area of Business Valuations.
|Steve Erlinger: Laundry Broker, Consultant
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. Call 949-500-5893.
|Joanne Weber, Broker - Preschool Specialist - Southern California
The Ryan Craig Company is in its 35th year as the recognized expert in Southern California, dealing exclusively in the sale of preschools, Montessori schools, day care centers, and private schools. Our extensive list of references speaks for itself. Phone Joanne at 818-760-3684 for more info.
|Larry Larsen: Laundry Consulting, Brokerage, Insurance
I have over forty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance. Phone me at 714-630-9274 or 714-630-Wash.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
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Coachella Valley business broker Bob Hughes (760-323-8311), discusses the need for due-diligence and items that should be collected & investigated by the buyer during this critical process of buying a small business. Read his latest blog post on due diligence considerations before buying a business!
|Purchase A Business With Limited Or No Cash - Financing Tips For Buyers
Purchasing a business with no money down can be difficult, but not impossible. Financing a business purchase or down payment can often be accomplished with these strategies from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 925-785-3118.
|Broker Explains Allocation Of The Purchase Price When Selling A Business
There are a handful of key asset categories in allocating or breaking down the purchase price allocation of a California business sale. Allocation is required to complete the transaction. In this blog post Lee Petsas (Orange County Business Broker) at 714-363-0440 covers asset allocation classes.
|Live Workshop: How to Find Profitable Businesses For Sale Not On The Market
Live Workshop For Business Buyers: Find Small Businesses Possible For Sale Not On The Market. This Workshop Is In Southern California. Every Month On Saturdays - 1:30 PM to 4:30 PM. Call 805-428-2063 to RSVP. Willard Michlin, CPA will be presenting this workshop. Click On Link For Schedule & Times.
|Thinking About Selling A Small Business? Know These 8 Factors That Matter
The likelihood of selling a business is often determined by external factors in the marketplace. Here are eight influences on how easy, or difficult it might be when selling a small California business. Peter Siegel at 925-785-3118 (BizBen ProSell Program) explains these factors for owner/sellers.
|Podcast/Vlog: Business Purchase Financing Chat: SBA Loan, Non SBA Financing
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|Business Purchase Financing Help - Expert Tips For Faster SBA Loan Approvals
Business purchase financing advisor Peter Siegel, MBA shares his views on SBA loan financing. He explains the nuances of the SBA loan process when considering business purchase financing or getting pre-qualified. Reach Peter Siegel, MBA direct at 925-785-3118 regarding SBA & Non SBA Loan Financing.
|Differences Between Business Appraisers, CPA's, And Due Diligence Experts
What are the differences between a Business Appraiser, CPA auditor and Due Diligence Expert - and why should you care? Insights from Willard Michlin, CPA in his latest BizBen blog post that will be useful for someone engaged in, or planning to conduct due diligence in the future