3 Poor Reasons Why Sellers Do Not Offer A Business For Sale In Good Economy

3 Reasons Sellers Do Not Sell Their Busiiness

Since 2008, when the U.S. economy began its slump, a number of small business owners, who were ready to retire decided to hang on rather than offering their business for sale in a sluggish market. That made sense for a lot of people. They realized that buyers would be hesitant to take over a company that shows a decline in financial results because of the recession.  And sellers understood that any offers they might receive were likely to be at unacceptably low prices.

The economy is doing much better now and that growth is reflected in the improved performance of many small businesses. Yet some of those sellers aren’t taking advantage of the growth trends in the economy and the resulting increase in the values of their companies. There are three main reasons some sellers still are reluctant to find a buyer and enjoy the financial results of a sale. 

1. Betting on continued growth: The rationale behind this reason an owner might not be ready to sell is the idea that if the company has grown so well in the past several months, it means that the growth trend will continue. And that means the business will be worth substantially more in six months and will continue to gain in value into the foreseeable future. 

The problem with this reasoning is the risk that another slowdown might be coming in the near future. If your retail business has begun to pick up after several months of declining sales, you might be tempted to sit back and watch new customers come through the door, bringing an increase in gross sales  and improvement in owner's discretionary earnings. The comforting idea along this line of thought is that the more discretionary income is available for the owner, the higher the price of the business. The fear is that the company would be sold "too soon." A seller in this situation might worry that if the sale were to happen in the near future, he or she would regret selling at a price that is lower than might have been achieved after waiting another year or so. The fear of "leaving money on the table" is the motivation behind a number of business decisions that don’t yield the desired results. Instead of worrying about the possibility of getting less than the maximum price, the seller might be smart to consider another possible outcome - that the business could encounter one or more of the many circumstances that could quickly cause a reversal of fortune and a decline in its value and desirability.

2. Want to enjoy the current level of income: Regardless of how much an increase in business hikes the value and sale price of the company, a company owner may be pleased to continue answering the phone from customers and responding to growing online orders for what his or her company offers. After months of worrying about whether revenues will be sufficient to pay all expenses and leave a decent profit for the company’s investors, it's a very satisfying experience to see the positive direction of the income line on the business performance chart. The last thing the owner wants to do when the business is producing more income is sell the company and end the enjoyment of seeing it continue to produce more profit. 

But like the owner who wants to hang on with the idea that the business will continue to increase in value, the owner who wants to collect every dollar available as long as business is so good, might find that changes in the business climate or other unexpected circumstances can quickly turn what was a growth trend in the opposite direction.

3. Trying to "game" the timing of the sale: I've talked to a number of owners who have watched their businesses go through up and down cycles over the years and are convinced they can time a sale to their advantage. Their plan is to put the company on the market right before the end of a growth period and before revenues and earnings begin to decline.  But some of these people have learned that even if they think they can predict the impact of economic cycles on the performance of their businesses, they can't forecast all factors that might influence the value of the company. If a powerful competitor moves into the area, a key employee resigns or an unhappy customer brings a lawsuit, possible buyers might suddenly lose interest.  Or they’ll delay making a decision about submitting an offer, waiting to see the consequences of these new events.

It is understandable why a seller would want to hang on to a business that is doing well, even if he or she has strong personal reasons for wanting to sell. The mistake some sellers make, however, is when they try to get the full benefit of the company's growth, and to sell at the best conceivable price.  In most cases, the seller with this mind set is simply betting on the right time to sell. I usually recommend that people watching their businesses improve and wondering when to offer them for sale would be smart to consider that there may be no better time than the present.

Peter Siegel, MBAAbout This Contributor: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) working with business buyers, business owners/sellers, business brokers, agents, investors, & advisors). Phone him at 925-785-3118 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.

Categories: Buying A Business, Deal And Escrow Issues, Selling A Business

Comments Regarding This Blog Post

I always try to ask for their motivation, but also what they will probably do if they end up selling. Unless they are financially set, they're going to need some sort of income. With regards to waiting to see if sales pick up through a new marketing idea, I always remind them that there needs to be at least a year of documentation of increased sales to see an increase in market value price.

In selling real estate, there are three most important items: location, location, and location, and many other lesser important items. In selling a business, there are also three important items: timing, timing, and timing; all the other factors are secondary. So, when is the best time to sell? When the business is doing well. When a business owner tries to squeeze the vary last bit of "juice" out of their business, it very often turns sour before a sale can be made.

Betting on continued growth and trying to hold onto steady income when the owner knows instinctively that it is time to sell can be just as problematic as gaming the timing of the sale.

I recently had a business for sale for 7 figures - a strong long-established bricks-and-mortar and Internet retailer. After the business was listed, the owner decided that he liked the steady income and started complicating the deal by insisting on maintaining a continuing stake in procuring the inventory, and structuring a royalty on future sales, and participating in future growth. Nevertheless, despite all of the seller's new conditions, a buyer contracted to purchase the business for just over a million dollars with all those conditions in place and an obligation to pay substantial additional consideration over the next several years . In the process, the seller closed down the current showroom in anticipation of the buyers opening a new one nearby. But, the seller had complicated the deal by refusing to "let go." And, when the purchase loan application hit a snag because of all the seller's new conditions, he refused to cooperate with the buyers in re-structuring the deal in a way that would facilitate the financing.

Sadly, the contract fell through. Now the seller has a business without a physical location and, therefore, sales declining, and a business worth far less than it was just a few months ago.

The bottom line: professional business brokers have a lot of experience counseling business owners about building the value of their businesses and correctly timing the sale. Business selling, like poker, involves both luck and skill; but, just like poker, when selling a business it takes a professional to know "when to hold 'em and when to fold 'em."

  Helpful Resources To Assist In Selling And Buying California Businesses
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: 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.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

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.

Elizabeth McGovern: Escrow Services - San Francisco 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.

Brad Steinberg, Business Broker: Laundromat Specialist

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.

Janet Carrera: Escrow & Bulk Sale Service - 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.

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