What are the odds of your business actually selling once you have made the decision to sell?

Well, national statistics indicate that the odds of your business selling are only 25 to 30 percent.

What does this mean? To put it bluntly: if you are thinking of selling your business, you have, on an average, about a one in three chance of it actually selling. This obviously begs the question: Why are the odds so poor? One would think that if you put your business on the market, it should sell in a reasonable length of time. Here are some reasons why some businesses don't sell. 

  • The business asking price is too high. A buyer must be able to make a livable wage, make loan payments on the debt incurred from the purchase, and make a reasonable return on the investment. Lending institutions address these very same issues when analyzing the financeability a business acquistion.

  • The economics of the deal are not doable, and the seller is unwilling to negotiate on the terms of the deal structure or the price.

  • There was serious interest from prospective buyers, but the owner got distracted by friends or other associates who were considering buying the business or knew someone who might be interested. None came through.

  • A contract agreement was made to buy the business, but financing was impossible to find. If a business does not have verifyable financial records for at least three years that support the asking price, the business cannot obtain financing from a banking institution. If the seller is unwilling to provide finance terms, the business cannot be sold. At least 90% of all small business sales are financed in one way or another.

  • The buyer couldn't get financing. Not only the business must be loan worthy, the buyer must also be qualified for the loan.

  • The deal dragged on for months but fell apart for lack of financing.

They say that timing is everything. Many business owners wait until the economy is down. Their own business is also paying the price for the slowdown, so they elect to sell. Now they discover that the price they thought they could get for their business is not realistic in today's market. Sellers should keep in mind that the best time to sell is when their business is doing well.

One factor that emerges from the comments by business brokers above is the lack of financing. This would seem to indicate that the sellers wanted all cash, or, at least, a good portion of the selling price in cash. Three of the comments stated that the reason the deal didn't go through was that "financing was impossible to find," "the buyer couldn't get financing," and "fell apart for lack of financing." The reasons that obtaining financing is so difficult are:

(1) the business doesn't qualify for financing
(2) the buyer doesn't qualify for financing, and, most importantly
(3) most small businesses are not financeable.

If lenders are not interested in financing the sale of the business, there are only two choices: the buyer pays all cash or the seller finances the sale.

Tips For A More Timely Sale

Here are two major ways to increase the odds that your business will be the one in five that sells:

(1) Make sure that you are serious before you put your business up for sale. You should be willing to accept, within reason, what the marketplace is willing to pay. It's not what you want for your business, or what your accountant says it's worth - it's what a buyer is willing to pay. Find out if the price you are asking is in the "ballpark" before you go to market. Your local business brokerage professional is a good place to start. He or she can tell you what similar businesses have sold for and what you might expect to receive if you sell now.

(2) Be willing to finance part of the sale of your business. Counting on the business selling for all cash or assuming that the business can be financed will most likely make your business one of the four that don't sell. By showing your willingness to assist in the financing, you reassure the buyer that you have confidence in the businesses' ability to finance itself. Also, keep in mind that by financing the business you will be entitled to interest on the balance, thereby increasing the price you will receive.

Following these guidelines and tips might not sell your business, but it will certainly increase the odds. Almost any business will sell under the right circumstances. If you are serious about selling, the first step would be to call a professional business broker. He or she can answer all of your questions about the selling process and what it takes to sell your business in your local current economic climate.

The Perfect Business

While there is no perfect business, the one that would be most likely to sell, has the following attributes:

  • A reasonable price

  • A reasonable down payment (hopefully 40 percent of the full price or less)

  • Seller financing

  • Reasonable gross revenues (ideally increasing each year)

  • Seller earnings of $60,000 or more

  • A compelling reason for sale

  • A desired or popular industry type

  • Attractive and strategic location (if important for business type)

There is an old saying that goes something like this: "The worst day of working for yourself is better than the best day of working for someone else."

Copyright 2005 Business Brokerage Press