Only 20% of small businesses find a buyer. Why most businesses never sell?
It’s a grim statistic. 80% of business owners turn around and lock the door as they have always, done for years. But one last time, it will be for good and they will never be back.
Years worth of hard work taking on the stress of payroll, bank loans, and business red tape is a tough grind that employees don’t understand. But the owner moves forward with the ambition and optimism that it will all be worth it when the business is sold and their retirement is fully funded.
Yet, when that day doesn’t come, it can be devastating to a business owner left questioning if they made the right decisions. Should they have worked for someone else for alot fewer headaches?
So the question is, why do most businesses never sell if the owner is ready, willing, and able?
We asked business brokers across the country about their real-world experiences about why most businesses never sell. Here’s what they had to say.
Unrealistic seller expectations
Sellers are proud of their business and frequently think it’s one of a kind. As a result, they may have the preconceived notion that their business is worth a premium over others in the same industry and geographical location. Expecting to find a buyer in days, close in a week, and not holding a note just isn’t realistic.
Unrealistic buyer expectations
The same can be said for buyers. Some buyers treat a business listed for sale like a straw market in Mexico. Throwing out insulting offers and hoping to find a business owner desperate to get out. In the end, these types of buyers are just time wasters and contributor to why most businesses never sell.
Pricing too high
There is more than one story about Silicon Valley companies starting in a garage, never turning a profit and selling just a couple of years later for billions of dollars. However, those same market conditions don’t exist for most businesses in America so don’t expect the same multiple. Similar to real estate, a business sale transaction will be logically based on how quickly the buyer will get their investment back. Pricing too high means they have to wait too long and will move onto the next opportunity.
Accurate record-keeping by the seller should start years before the business is listed for sale. Proper accounting for expenses, cash sales, and categorization give the buyer confidence to move forward and to obtain bank financing. Sloppy books can make a business unsellable.
“It’s really difficult for a business broker to be everything to everybody. I have found success niching down to be the expert in one industry, HVAC. I used to own an HVAC company myself. So I’m very familiar with the challenges sellers and buyers face. I speak their language, so representing HVAC companies is all I do, every day.
Once he meets with a seller interested in listing his business, the next challenge is to prepare the value proposition. “We want to effectively tell the story about how the business was started, how it evolved, and the reason for selling. Once we have that narrative down, I move onto the books. The financial records should tell their own story about the health of the business. I even go one step farther and get the business pre-approved by a bank so the buyer knows they won’t have a problem if they want to use SBA financing.
Using an industry-specific broker has its advantages.
They maintain a database of buyers interested in the industry. When the broker gets a listing, they have a ready-made list to pitch the business too. “It’s my secret weapon, says Lange. I learned that my ever-growing list is where the gold is. My marketing guy’s only job is to make sure we are communicating with this audience at least twice per month. I’ll send them informative articles, new listings, and other opportunities that keep them interested. It’s not uncommon to get immediate interest from 3-4 buyers after I send them a fresh company to look at.. Speed is key in this business. I need to be able to make that buyer-seller match quickly.”
Lange next cites balancing egos and finances as part of his success formula. “My job is to show the seller how much his business is worth on the open market. Sometimes that number is out of line with their expectations. If thats the case, we stop there and have an intelligent conversation about if this is the right time to sell, or if it’s in their interest to build more value so they can get the multiple they want.”
On the buyer side, Lange has little tolerance for bargain hunters. “I’m looking for a fair offer for my seller’s business, nothing less. Even if it’s a reasonable offer, I still need to make sure they have the financial capacity to come up with the needed cash down payment and get bank qualified. If they can’t meet these minimum requirements, I don’t waste my seller’s time with meeting them.
The advice for HVAC owners is to find a broker that has the experience and the network to get the business sold quickly. Lange concludes, “Building a business is supposed to be the hard part. Selling it should just be just one more final transaction if you’re working with the right people.
Patrick Lange is an experienced HVAC specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last 12 months and is currently the Vice President of the Business Brokers of Florida (North Florida District.)