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Why Businesses Do Not Sell

It would be nice to live in a world where every business-for-sale was sold at top dollar. While there is no such thing as a perfect business free from all defects, there are a number of problems that can hinder a sale that could be remedied, if given enough time. This article lists ten of the reasons which are often cited as contributing factors in an unsuccessful sale or a completed deal for less than potential value. Business intermediaries need to be up-front with their seller clients, educating them on the challenges faced, and the likely impact that one or more of these issues will have on completing a successful transaction.

 

 1.    UNREALISTIC EXPECTATIONS

 

 a.    Valuation/Listing Price

 

Arguably, the price a business is listed at is one of the critical elements to a successful sale.  An owner’s emotional attachment to their business, coupled with an inexperienced business intermediary’s desire to obtain the listing and please the seller, can be a recipe for disaster.  Overpricing a business will deter knowledgeable buyers from establishing communications.  Additionally, it will be extremely difficult to defend the valuation when a business has been priced unrealistically. The typical outcome is that the listing will languish in the marketplace and recovery becomes more difficult.  Once on the market for months on end at the wrong price, the process in re-pricing and re-listing creates a whole new set of challenges, the least of which is maintaining credibility.

 

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Growing a Landscaping or Lawn Care Business That You Can Sell

This checklist outlines the most important variables that impact business value specific to landscaping and lawn care companies. Groom your business to achieve maximum value before putting it up for sale. 

Build a management team:  A business is more valuable if the owner is not the landscaper, the mower, the weeder, or the sidewalk edger.  If you have management and supervisory staff in place overseeing the crews, your business will be more valuable and much easier to sell. Don't be an owner-driven operation. Build your business so anyone can run it. The more important you are to your business, the less your business will be worth. Additionally, building your company so anyone can run it vastly opens up the universe of buyers that can purchase the business.

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Performing Successful Due Diligence In A Business Sale

Performing due diligence on a business being considered for purchase should be conducted much like a surgical procedure. The operation should be an organized examination of the vitals of the company. It should also be approached knowing that this is an invasive phase of the sale process for the owner.

 

This stage of buying a business begins once you have made your offer and the seller has accepted. A contractual agreement has been entered into between the buyer and seller outlining the price and terms of the sale. The contract is contingent upon the business passing "inspection," which is the due diligence period allotted to the buyer.

 

Since it is the buyer's responsibility to uncover any potential problem areas of the business, it is important to be prepared. Depending on the size of the business, a buyer will typically have about two to four weeks to complete the process.  Having a checklist in hand to present to the seller at the beginning of the process will enable the seller to gather all the information in a timely fashion.  This will give you enough time to confirm all material facts of the business and validate what the seller has represented. The buyer, being the leader of the procedure, may call in specialists, such as an attorney to examine the legal aspects of the business and an accountant to scope the numbers.

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Reasons For A Business Sale

The reasons for selling a business can be divided into two main categories. The first is a sale that is planned almost from the beginning or by an owner who knows that selling is or should be a planned event.  The second is exactly the opposite – unplanned; the sale is motivated by a specific event such as health, divorce, business crises, etc. However, in between the two major reasons, are a host of unpredictable ones.

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The A of Valuation ABCs

It’s no fun telling a songwriter his song is bad. Telling an author her novel won’t sell takes nerves of steel. Telling a business owner his business is overvalued is no way to make a friend, much less gain a client.

Marvin (not his real name) was flat P-O’ed at me. When I told him how a buyer would look at his business, he told me in no uncertain terms he was not going to hire me because I didn’t know the market and didn’t appreciate how hard he’d worked over the years.

After almost 30 years of buying and selling businesses, I understand that it’s common for a business owner to have an unrealistic valuation expectation. This disconnect can be exacerbated by a business broker who is not honest with the business owner. Too many business brokers will tell an owner what the owner wants to hear about his valuation in order to get the listing, hoping the owner will lower his expectation if an offer comes in.

But here’s the deal, over-priced businesses usually don’t generate quality offers. For me, I take the honest approach and tell my clients in advance what they can reasonably expect to get for their business. Sometimes there is fallout like Marvin, but most times, an owner will recognize and appreciate my honesty.

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Avoiding The Biggest Deal Killer: Time

When selling a business, time is not your friend. Time is the enemy of all deals. In fact, "time kills all deals" is an expression that can be associated with a number of different industries, but is especially relevant to business acquisitions. So, the key to a successful deal is to prepare well, come out strong and maintain momentum throughout the business sale process. The deal clock is set in motion as soon as your company hits the business-for-sale market, not later in the process when a buyer presents the first offer.

So, to generate deal momentum, a business owner should be ready for the trip to the marketplace before the train leaves the station. This means organize your documentation and vet potential roadblocks that can derail or delay the process. 

Don’t let time work against you. Ready up with these tips to reach a timely closing:

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Own The Property? How Is The Real Estate Handled When Selling Your Business?

No matter how the real estate is held, many owners desire to sell the real estate with the business. There's only one problem. Many buyers that will want to acquire your business will not have the capital to also acquire the real estate.  Or they may feel that parking a significant investment in real estate makes a large portion of their investment capital unavailable for growing their new enterprise.  The ideal scenario that creates the largest buyer pool is for the seller to offer the real estate for sale or for lease at the option of the buyer.

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It's A Competitive Market For Buying A Business

If you are looking for a profitable, well-run business to acquire, you are not alone.  Right now, there are not enough businesses for sale to meet buyer demand, as reported by a Market Pulse Survey in early 2017 sponsored by the IBBA (International Business Brokers Association) and M&A Source. The survey was conducted with support from the Graziado School of Business at Pepperdine University.

 

Not only are there not enough businesses on the market to satisfy the number of buyers looking for an acquisition, there's much more capital available than there are companies to buy, as indicated in Deloitte's Perspectives Report. 

 

As soon as a solid business goes on the market we see well-prepared ready-and-able buyers competing to put themselves in front of the Seller.  Buyers must be prepared and ready for the competition and be able to move quickly.

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Will Selling Your Business Get Alot Less Taxing?

The business sale process typically begins with an initial inquiry stage, during which owners try to get an idea of what their businesses are worth and whether selling makes sense. They are "sale curious" and have been thinking about it more than a time or two. When a business is sold, big or small, taxes are inevitable. Three reasons that selling a business in the Trump presidency might be beneficial...here's a look into Trump's proposed tax changes, and what they can mean for selling a business in the upcoming year. Three reasons that selling a business in the Trump presidency might be beneficial...here's a look into Trump's proposed tax changes, and what they can mean for selling a business in the upcoming year.

 

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Navigating Today's Business-For-Sale Environment

A record number of small businesses were bought and sold in America in 2016, topping 2015's totals by 8.6 percent and 2014's previous high by 4.6 percent. Will this momentum be sustained? According to Deloitte's year-end report "activity is poised to accelerate, perhaps significantly." Primary factors for the bullish outlook are stock prices at historic levels, interest rates... despite the forecast for an increase...remain near or at historic lows, an improving business environment, more qualified buyers on the market, and much improved financing options.

 

The following data shows a snapshot of 2016 market statistics for the Greater Houston Metro Area. A total of 66 U.S. metro areas were represented in a report by BizBuySell from data provided by Business Brokers. Most businesses are valued based on a multiple of adjusted earnings.

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