Every year thousands of business owners attempt to sell their businesses. Much like residential property, where the auction clearance rate may be 60 to 70 per cent on any given Saturday, businesses sometimes don’t sell as planned.
The sale of a medium sized business is generally a six to nine month process from engaging an adviser to having the cash proceeds in your bank account. Because of this time frame and the complexity of mergers and acquisitions, there are a plethora of reasons why a business may fail to sell.
When it comes to planning and executing a successful sale, we're the experts. See how Nash Advisory sells a business.
Here are the top 10 reasons why a business might fail to sell
1. Vendors with unrealistic value expectations
You may have put your heart and soul into your business, but you can't expect buyers to be as sentimental as you are. You need to be realistic with the potential value of your business.
2. When vendors expect to sell and walk away from the business on the next day
The handover process during the sale of a business can be extensive. A good handover will help the buyer realise the full value of your business, so you should expect to still be involved in the business for some time after the sale.
3. If the company has not adequately prepared for the sale
Your business needs to be prepared from a financial, accounting, legal, and general commercial diligence perspective. Data is everything in a sale, so you'll need to have all this information ready to provide to potential buyers.
4. If a company has not engaged a suitable law firm to represent them
Preparing for legal diligence and preparing the legal agreements for a sale are two of the most delicate stages in the sale process, so they need to be handled by the right firm. Read more about choosing a good lawyer for your sale.
5. Lack of depth in the management team
If your business lacks strong leadership without the owners or founders, then potential buyers may be concerned the business could fail after you exit.
6. If a company has limited barriers to entry
If there are minimal barriers to entry for other companies or competitors to offer a similar product or service, you may struggle to sell your business as buyers will view your business as easy to replicate, and therefore the earnings are less sustainable.
7. Financial performance of the company is deteriorating
If your company isn't performing as well as it used to, potential buyers could take this as a sign that the outlook is poor for your business.
8. A small pool of potential buyers
Depending on your sector, location, and size, there may only be a handful of potential buyers for your business. This could make it more difficult to achieve a successful sale.
9. Lack of funding for buyers
Potential buyers could be struggling to get financing or other means of funding. This may be because of economic or seasonal factors.
10. Lack of interest in your sector
Trends are a powerful factor in our economy, and it's possible your sector of the economy is out of favour due to changing business or consumer behaviour.
Get the right advice
With our expertise, we have achieved a 75 per cent success rate for our clients' transactions. We consider the 10 factors described above, as well as a great many others, while assessing your business and preparing it for sale.
We are remunerated based on success, so if we determine that the probability of success on a transaction is low, we will advise you of the steps you need to take before considering a business sale. Open and clear communications early in the process provide the best chance of success for all parties involved.
