The Sign Businesses For Sale Blog
Selling a Business? Be Aware of These Four Potential Issues
We’ve outlined below a few unexpected aspects of the business sale process that can pop up. Sometimes they severely impact the turnaround time of a sale. But if you can understand these potential issues better, you will be better prepared to try to circumvent them.
1. Do You Have Time on Your Side?
It’s helpful to use an intermediary who will assist with the filtering of prospects vs. “suspects.” However, the inclusion of yet another party, in addition to both the business seller and potential buyers, increases the amount of time required to navigate the process.
Sellers are typically unaware of the time and documentation needed to compile the required Offering Memorandum. Once completed, the seller must provide both the intermediary and potential buyer more time to review and propose meetings and pricing. In the interim, owners are faced with the challenge of keeping their business thriving.
2. Trying to Do Too Much
It’s not surprising when a company owner is also its founder that individual is typically used to making all of the decisions. That’s why business owners in the midst of selling will soon find themselves challenged with the desire to fully be a part of both the selling process and the running of the business.
Delegation to someone else, such as the Sales Manager, can be truly invaluable. Think of your top people as extremely valuable resources. They may have first-hand knowledge regarding additional concerns such as competition and potentially interested acquirers. Bringing in trusted employees to be part of the sales process can be tremendously beneficial.
3. Delays Due to Stockholders
When mid-sized, privately held companies are supported by minority stockholders, these individuals must be included in the selling process—however small their share may be. The business owner will need to firstly obtain their approval to sell by using the sale price and terms as influencers. Of course, issues such as competing interests, pricing disagreements, and even inter-family concerns may cause conflict and further delay the process.
4. Money Issues
Once sellers decide upon a price that they would like to see, it is sometimes difficult for them to accept or even consider anything less. After all, a business owner likely created the company and may have a strong emotional attachment.
Another factor that often interferes with a successful sale occurs when sellers instantly turn down offers because they don’t meet with their desired asking price.
That’s when the intermediary can often come in to salvage the deal. A business broker often serves as a negotiator. He or she can work out a deal that is structured in a manner that works for both sides.
Your Company’s Undocumented Worth
The valuation is a major factor that influences the overall selling price of the property. Business appraisals are based upon a multitude of criteria and indisputable records such as comparables, projections, discount rates, EBITDA multiples, and more.
While the appraiser may have all the information he or she needs, the business elements might be overlooked. That’s why it’s extremely helpful for business appraisers to first grasp the purpose of an appraisal prior to getting started. Unfortunately, the appraiser is often unaware of additional considerations that may enhance or even devalue a business’ overall worth.
Is There Unwritten Value?
Business owners generally agree that prospective buyers are mostly looking for quality in depth of management, market share, and profitability. Though undoubtedly more subjective than documentation, figures, and calculations alone, information regarding key business elements such as market, operations, post-acquisition, value drivers, and fundamentals is highly valued to potential buyers.
Here are some questions to consider regarding a couple of these crucial elements:
Is there an abundance of market competition?
Does pricing reasonably align with the demographic?
Are the company goals consistent with advancing technology?
Are there various and/or global means of reach and distribution?
Does the business have more potential beyond a niche?
What’s the company’s competitive advantage?
What are the strengths and weaknesses of its competitors?
Is there a great deal of alternative technologies?
Are there various vendors?
Is the company’s location convenient to its target audience?
Increased Success & Valuation
Successful businesses thrive due to company-wide values and consistent customer-centric efforts. In his book The 100 Absolutely Unbreakable Laws of Business, Brian Tracy summarizes this as “a company-wide focus on marketing, sales and revenue generation. The most important energies of the most talented people in the company must be centered on the customer. The failures to focus single-mindedly on sales are the number one causes of business failures, which are triggered by a drop-off in sales.”
Tracy continues by pointing out that trends may be the most pivotal consideration and bottom-line contributor to any given company’s success and, therefore, valuation. For 2017, projected trends include the increased use of video marketing, crowdfunding as a source of product validation, nutrition and fitness tracking products, the use of e-commerce, and the acquisition and training of remote employees.
Understanding Trends
Start-up companies are likely practicing as many current trends as possible within their limited funding in an attempt to establish market share, while mature companies are hiring millennials to keep their business hip to those same trends in an effort to protect their existing share. Business owners would benefit from studying and ultimately executing these current trends, as well as from acknowledging the successes and mistakes of their competitors.
Tracy suggests that daily conversations that encompass problem-solving, decision-making, and team collaboration are pivotal factors in making a company successful. And those performing all of these necessities? As Tracy reiterates, top companies have the best people.
Service Businesses Perform Highest When It Comes to Sales
Recently, Business Brokerage Press performed a survey of brokers across the country to see what sells at the highest rate, and what they discovered was very interesting. Retail business sold at 17%, food and drink related businesses at 14%, service oriented businesses sold at 25%, auto related businesses sold at 9%, manufacturing businesses sold at 16% and distribution businesses sold at 11%. Businesses labeled as “other” sold at 5% and professional practices at 4%.
What is a Service Business?
Looking at this gathered information, it is clear that “service type businesses” are very hot and doing quite well. The range for what is considered a service type business is, in fact, rather broad. It encompasses everything from a dry cleaner and hair stylist business to a massage therapy chain or dental practice. Just so long as a business is providing a service and doesn’t fall into another category, it falls under the “service oriented” banner.
Food and Drink Businesses
One of the next key nuggets of information from the survey is that food and drink businesses tend to perform quite well too. Food and drink businesses range from bars to sit down restaurants or fast food establishments. The simple fact is that people need to eat, and this truth is certainly reflected in the strong performance of food and drink businesses. The need for certain types of businesses may change with changing times and changing technologies, but food and drink remains a staple.
Eating, for example, isn’t a trend and the tradition of visiting a local bar or restaurant is very established. In fact, some of the oldest continuously operating businesses in the world are bars and restaurants. Those looking for a business that has some degree of built in stability and is likely to be at least partially immune to emerging trends will be well advised to consider food and drink businesses.
The Mindset of Today’s Buyers
When you are considering what types of businesses that buyers may find interesting it is important to pause and reflect on the likely profile of prospective buyers. Today, a large percentage of prospective buyers are well educated and bring a lot of experience to the table. In short, they are savvy and know what they want.
This combination of education and experience also means that they are open minded and potentially flexible regarding the type of businesses that they will consider. Most prospective buyers will, in fact, be open to a wide array of potential options. At the end of the day, the most important factor for most prospective buyers will be whether or not a business is profitable.
The majority of prospective buyers will not be making an emotional buy. Instead, due to their combination of experience and education, they are very likely to focus on profitability above all else. Of course, this fact underscores the importance of having your business ready to sell long before the first prospective buyer sees it.